Perhaps never before had a chief of state launched such an open assault on the monetary power of a friendly nation. Nor had anyone of such stature made so sweeping a criticism of the international monetary system since its founding in 1944. There was Charles de Gaulle last week proclaiming that the primacy of the dollar in international dealings was finished, calling for an eventual return to the gold standard —which the world's nations scrapped 50 years ago — and practically inviting other countries to follow France's lead and cash in their dollars for gold. It was a particularly nettling irritant just as the U.S. was deeply involved in making some hard decisions about its monetary policy.
The Drain. President Johnson faces the unpleasant task of producing what he calls "strong and specific" actions to deal with the persistent U.S. balance-of-payments deficit, a problem intimately related to gold. The President's advisers are still debating just how "strong" these imminent measures should be.
There is a growing awareness, heightened by De Gaulle's offensive, that past attempts to close the payments gap have been mere palliatives — and that the problem has begun to undermine U.S. influence around the globe.
Just before De Gaulle spoke, Treasury Secretary Douglas Dillon made the first public admission that the U.S. payments deficit in 1964 moved higher than anyone had expected. It totaled about $3 billion, all of which the U.S. is legally committed to exchange for U.S. gold on demand. The Federal Reserve announced that the U.S. gold supply declined last week by $100 million, to a 26-year low of $15.1 billion.
France converted $150 million into gold last month, plans another $150 million conversion soon. Following that lead, Spain has quietly exchanged $60 million of its dollar reserves for U.S. gold—the biggest such transaction of the Franco era. To free more gold to meet rising demand, a congressional committee last week approved President Johnson's proposal to eliminate the 25% gold backing now legally required for deposits held in the Federal Reserve System. But concern is growing in Washington that nations that have so far refrained from converting dollars out of consideration for the U.S. may cash them in for gold once the extra bullion becomes available—and thus send still more gold-laden truckloads rolling out of Fort Knox.
Signal Privilege. Into this tense situation stepped De Gaulle, disregarding his 1963 promise to support the present international monetary system, in which the dollar plays the dominant role and all free world trade is financed by a mix of dollars, British pounds and gold. The time has long since passed, he told a press conference (see THE WORLD), when the currencies of any one or two nations can enjoy "this signal privilege, this signal advantage." The present-day world, said De Gaulle, needs "an indisputable monetary base, and one that does not bear the mark of any particular country. In truth, one does not see how one could really have any standard criterion other than gold."