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That would by no means amount to a Goldfinger kind of raid on Fort Knox, where the bulk of U.S. gold is held. Still, the U.S. holds 36% of the world's gold supply, and France's move was bound to cause trouble just when the U.S. could ill afford it. The U.S. is committed by law to back its money with a 25% gold "cover." In the past year, the cover has dropped from 29.7% to 27.7%, largely because the Federal Reserve issued so much new money to service the expanding economy while the nation's gold supply has remained static. This year the outflow of U.S. gold to foreign countries is expected to reach its highest level since 1960, and the gold cover will slip perilously close to the 25% floor.
Little Choice. De Gaulle's power play left the U.S. little choice. Because the U.S. is dead set against devaluation, revision of the cover law has long been urged by the Treasury and some top U.S. bankers. Now the Administration hopes to get Congress to keep the 25% cover on the $35 billion worth of green dollars in circulation, but remove it from the $20 billion in deposits in the Federal Reserve system. That would free $5 billion in gold for the U.S. to meet any claims against the dollar.
The fact that the U.S. is forced to proceed with this plan in an atmosphere of crisis does not help to increase world confidence in the dollar—even though many Britons consider the 25% cover requirement nonsensical. Nor does it raise confidence in the efficiency and fairness of the world money system. Despite its $7 billion trade surplus, the U.S. has to worry about an outflow of gold under the current rules simply because it spends so much abroad for tourism, investment, foreign aid and the common defense of the western world. More and more money experts have begun to complain that any system that penalizes such beneficial spending is in need of overhaul.