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Though they sprang it on speculators as a surprise, central bankers had been quietly discussing the shutdown of the London gold pool and the move to the split-price system since British devaluation. Italy and Belgium, restive at the growing drain on their reserves, remained in the pool only at U.S. prodding. Timing the switch presented delicate problems. By waiting for repeal of a 1945 law requiring a 25% gold backing for the currency, the U.S. could muster another $10.4 billion of gold for the defense of the dollar abroad. By discomfitingly small margins, the measure squeaked through Congress just in time. Last week, as the scratch of President Johnson's pen abolished the gold cover, the depleted U.S. gold stock just equaled the required 25%.
Red Sneers. From Budapest to Peking, Communists greeted the gold stampede with outright gloating—showing at least that Lenin's followers still heed his counsel: "The way to defeat the capitalist system is to debauch its currency." Crowed the Polish trade-union council, Glos Pracy: "The dollar is doomed. It is possible that joint efforts by world financial circles will stave off the crisis temporarily, but this will only postpone the execution." Sneered the New China News Agency: "The capitalist monetary system has in fact collapsed."
France's Charles de Gaulle, who wants the Western world to return to the gold standard,* was playing only a slightly different tune from the Red band. He called the present international monetary system "inequitable" and "henceforth inapplicable." Its continuance, he maintained, would "condemn the free world to grave economic, social and political trials." De Gaulle's attitude was understandable. By committing themselves in Washington to the two-tier gold system, the five other members of the Common Market had handed France a remarkable rebuff. They not only flouted their partner's wishes, but did so without consultation.
Almost every private and public authority of the Western countries agrees that to avoid a genuinely serious threat to the dollar, the U.S. must dramatically pare the inflationary deficit in both its domestic budget and balance of payments. Says General Director Max Ikle of the Swiss National Bank: "The welfare of the world depends on confidence in the dollar, and this now depends on American fiscal policies."