President Richard Nixon’s actions in 1971 to end dollar convertibility to gold and implement wage/price controls were intended to address the international dilemma of a looming gold run and the domestic problem of inflation. The new economic policy marked the beginning of the end of the Bretton Woods international monetary system and temporarily halted inflation.
The international monetary system after World War II was dubbed the Bretton Woods system after the meeting of forty-four countries in Bretton Woods, New Hampshire, in 1944. The countries agreed to keep their currencies fixed (but adjustable in exceptional situations) to the dollar, and the dollar was fixed to gold. Since 1958, when the Bretton Woods system became operational, countries settled their international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States had the responsibility of keeping the dollar price of gold fixed and had to adjust the supply of dollars to maintain confidence in future gold convertibility.
Initially, the Bretton Woods system operated as planned. Japan and Europe were still rebuilding their postwar economies and demand for US goods and services—and dollars—was high. Since the United States held about three-quarters of the world’s official gold reserves, the system seemed secure.
In the 1960s, European and Japanese exports became more competitive with US exports. The US share of world output decreased and so did the need for dollars, making converting those dollars to gold more desirable. The deteriorating US balance of payments, combined with military spending and foreign aid, resulted in a large supply of dollars around the world. Meanwhile, the gold supply had increased only marginally. Eventually, there were more foreign-held dollars than the United States had gold. The country was vulnerable to a run on gold and there was a loss of confidence in the US government’s ability to meet its obligations, thereby threatening both the dollar’s position as reserve currency and the overall Bretton Woods system.
Many efforts were made to adjust the US balance of payments and to uphold the Bretton Woods system, both domestically and internationally. These were meant to be “quick fixes” until the balance of payments could readjust, but they proved to be postponing the inevitable.
In March 1961, the US Treasury’s Exchange Stabilization Fund (ESF), with the Federal Reserve Bank of New York acting as its agent, began to intervene in the foreign-exchange market for the first time since World War II. The ESF buys and sells foreign exchange currency to stabilize conditions in the exchange rate market. While the interventions were successful for a time, the Treasury’s lack of resources limited its ability to mount broad dollar defense.
From 1962 until the closing of the US gold window in August 1971, the Federal Reserve relied on “currency swaps” as its key mechanism for temporarily defending the US gold stock. The Federal Reserve structured the reciprocal currency arrangements, or swap lines, by providing foreign central banks cover for unwanted dollar reserves, limiting the conversion of dollars to gold.
In March 1962, the Federal Reserve established its first swap line with the Bank of France and by the end of that year lines had been set up with nine central banks (Austria, Belgium, England, France, Germany, Italy, the Netherlands, Switzerland, and Canada). Altogether, the lines provided up to $900 million equivalent in foreign exchange. What started as a small, short-term credit facility grew to be a large, intermediate-term facility until the US gold window closed in August 1971. The growth and need for the swap lines signaled that they were not just a temporary fix, but a sign of a fundamental problem in the monetary system.
International efforts were also made to stem a run on gold. A run in the London gold market sent the price to $40 an ounce on October 20, 1960, exacerbating the threat to the system. In response, the London Gold Pool was formed on November 1, 1961. The pool consisted of a group of eight central banks (Great Britain, West Germany, Switzerland, the Netherlands, Belgium, Italy, France, and the United States). In order to keep the price of gold at $35 an ounce, the group agreed to pool gold reserves to intervene in the London gold market in order to maintain the Bretton Woods system. The pool was successful for six years until another gold crisis ensued. The British pound sterling devalued and another run on gold occurred, and France withdrew from the pool. The pool collapsed in March 1968.
At that time the seven remaining members of the London Gold Pool (Great Britain, West Germany, Switzerland, the Netherlands, Belgium, Italy, and the United States) agreed to formulate a two-tiered system. The central banks agreed to use their gold only in settling international debts and to not sell monetary gold on the private market. The two-tier system was in place until the US gold window closed in 1971.
These efforts of the global financial community proved to be temporary fixes to a broader structural problem with the Bretton Woods system. The structural problem, which has been called the “Triffin dilemma,” occurs when a country issues a global reserve currency (in this case, the United States) because of its global importance as a medium of exchange. The stability of that currency, however, comes into question when the country is persistently running current account deficits to fulfill that supply. As the current account deficits accumulate, the reserve currency becomes less desirable and its position as a reserve currency is threatened.
While the United States was in the midst of the Triffin dilemma, it was also facing a growing problem of inflation at home. The period that became known as the Great Inflation had started and policymakers had put anti-inflation policies in place, but they were short lived and ineffective. At first, both the Nixon administration and the Federal Reserve believed in a gradual approach, slowly lowering inflation with a minimum increase in unemployment. They would tolerate an unemployment rate of up to 4.5 percent, but by the end of the 1969-70 recession the unemployment rate had climbed to 6 percent, and inflation, as measured by the consumer price index, was 5.4 percent.
When Arthur Burns became chairman of the Board of Governors in 1970, he was faced with both slow growth and inflation, or stagflation. Burns believed that tightening monetary policy and the increase in unemployment that accompanied it would be ineffective against the inflation then occurring, because it stemmed from forces beyond the control of the Fed, such as labor unions, food and energy shortages, and OPEC’s control of oil prices. Moreover, many economists in the administration and at the Fed, including Burns, shared the view that inflation could not be reduced with an acceptable unemployment rate. According to economist Allan Meltzer, Andrew Brimmer, a Fed Board member from 1966 to 1974, noted at that time that employment was the principal goal and fighting inflation was the second priority. The Federal Open Market Committee implemented an expansionary monetary policy.
Bordo, Michael. “The Bretton Woods International Monetary System: A Historical Overview.” In A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, edited by Michael Bordo and Barry Eichengreen, 3-108. Chicago: University of Chicago Press, 1993.
Bordo, Michael D. and Barry Eichengreen, “Bretton Woods and the Great Inflation,” NBER Working Paper 14532, National Bureau of Economic Research, Cambridge, MA, December 2008.
Bordo, Michael, Owen Humpage, and Anna J. Schwartz, “Bretton Woods, Swap Lines, and the Federal Reserve’s Return to Intervention,” Working Paper 12-32, Federal Reserve Bank of Cleveland, Cleveland, OH, November 2012.
Burns, Arthur, “The Anguish of Central Banking,” The 1979 Per Jacobsson Lecture, Belgrade, Yugoslavia, September 30, 1979.
Eichengreen, Barry. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. New York: Oxford University Press, 2011.
Eichengreen, Barry, “Global Imbalances and the Lessons of Bretton Woods,” NBER Working Paper 10497, National Bureau of Economic Research, Cambridge, MA, May 2004.
Eichengreen, Barry. “Epilogue: Three Perspectives on the Bretton Woods System.” In A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, edited by Michael Bordo and Barry Eichengreen, 621-58, Chicago: University of Chicago Press, 1993.
Federal Reserve Bank of St. Louis. “Federal Reserve Bank of New York Annual Report.” 1971.
Federal Reserve Bank of St. Louis. “International Monetary Policies.” September 1947.
Federal Reserve Bank of St. Louis. “Stemming Inflation: The Office of Emergency Preparedness and the 90-day Freeze.” 1972.
Federal Reserve Bank of New York. “Exchange Stabilization Fund.” May 2007.
Lowenstein, Roger, “The Nixon Shock,” Bloomberg Businessweek, August 4, 2011.
Meltzer, Allan H., “Origins of the Great Inflation,” Federal Reserve Bank of St. Louis Review 87, no. 2, part 2 (March/April 2005): 145–75.
Meltzer, Allan H., “U.S. Policy in the Bretton Woods Era,” Federal Reserve Bank of St. Louis Review 73, no. 3 (May/June 1991): 53–83.
U.S. Department of State Office of the Historian. “The Bretton Woods Conference 1944.” Accessed on October 22, 2013.
Romer, Christina, “Commentary on Meltzer’s Origins of the Great Inflation,” Federal Reserve Bank of St. Louis Review 87, no. 2, part 2, (March/April 2005): 177-85.
Yergin, Daniel, and Joseph Stanislaw. The Commanding Heights. New York: Simon & Schuster, 1998.
Saturday, 11/10/2007 10:59
If the US won’t swap Dollars for gold, the rest of the world will just have to make the exchange itself…
THE PRESIDENT of FRANCE went to Washington this week. He spoke to Congress en Français and told the United States to stop dumping Dollars on the rest of the world, risking a global financial crisis.
Zut alors! Sounds just like old times…
“The Dollar cannot remain solely the problem of others,” said Nicholas Sarkozy before a joint session of Congress on Wednesday. He was riffing on the (infamous) joke made by John Connally, Treasury Secretary to Richard Nixon in the early ’70s.
Connally had told the world that the Dollar was America’s currency “but your problem.” Au contraire, replied Monsieur le President this week.
“If we’re not careful,” Sarkozy went on – apparently using “we” to mean both himself and the US Congress – “monetary disarray could morph into economic war. We would all be its victims.”
Ooh la la! Did Sarkozy need to take a little Dutch courage before speaking his mind to US legislators and wonks? (As the Belgian news anchor in this clip from June’s G8 summit puts it, M.Sarkozy only ever drinks lots of water.) Telling the US to take responsibility for its actions – and its currency – is a gambit for only the brave.
It weighs heavy with history, too. “What the United States owes to foreign countries it pays – at least in part – with Dollars that it can simply issue if it chooses to,” barked French president Charles de Gaulle in a landmark press conference of Feb. 1965.
“This unilateral facility contributes to the gradual disappearance of the idea that the Dollar is an impartial and international trade medium, whereas it is in fact a credit instrument reserved for one state only.”
De Gaulle did more than simply grumble and gripe, however. Unlike Nicholas Sarkozy, he still had the chance to exchange his dollars for a real, tangible asset – physical gold bullion – at the Federal Reserve.
Gold “does not change in nature,” de Gaulle reminded the world in that 1965 speech. “[Gold] can be made either into bars, ingots, or coins…has no nationality [and] is considered, in all places and at all times, the immutable and fiduciary value par excellence.”
How to collect and hoard this paragon of assets? Back in the 1950s and ’60s, world governments could simply tip up at the Fed, tap on the “Gold Window”, and swap their unwanted dollars for gold.
So that is exactly what de Gaulle did.
Starting in 1958, he ordered the Banque de France to increase the rate at which it converted new Dollar reserves into bullion; in 1965 alone, he sent the French navy across the Atlantic to pick up $150-million worth of gold; come 1967 the proportion of French national reserves held in gold had risen from 71.4% to 91.9%. The European average stood at a mere 78.1% at the time.
“The international monetary system is functioning poorly,” said Georges Pompidou, the French prime minister, that year, “because it gives advantages to countries with a reserve currency.
“These countries can afford inflation without paying for it.”
In 1968, de Gaulle then pulled out of the London “Gold Pool” – the government-run cartel that actively worked to suppress the Gold Price, capping it in line with the official $35 per ounce ordained by the US government. Three years later, and with gold being air-lifted from Fort Knox to New York to meet foreign demands for payment in gold, Richard Nixon put a stop to de Gaulle’s game. He stopped paying gold altogether.
De Gaulle called the Dollar “America’s exorbitant privilege“, repeating a phrase of his favorite economist, Jacques Rueff. This privilege gave the United States exclusive rights to print the Dollar, the world’s “reserve currency”, and force it on everyone else in payment of debt. Under the post-war Bretton Woods Agreement of 1946, the Dollar could not be refused.
Indeed, alongside gold – with which the Dollar was utterly interchangeable until 1971 – the US currency was real money, ready cash, the very thing itself. Everything else paled next to the imperial Dollar. Everything except gold.
“Printing a $100 bill is almost costless to the US government,” as Thomas Palley, a Washington-based economist wrote last year, “but foreigners must give more than $100 of resources to get the bill.
“That’s a tidy profit for US taxpayers.”
This profit – paid in oil from Arabia…children’s toys from China…and vacations in Europe‘s crumbling capital cities – has surged since the Unites States closed that “Gold Window” at the Fed, and ceased paying anything in return for its dollars.
Now the world must accept the Dollar and nothing else besides. So far, so good. But the scam will only work up until the moment that it doesn’t.
“The US trade deficit unexpectedly narrowed in Sept.,” reported Bloomberg on Friday, as “customers abroad snapped up American products from cotton to semiconductors, offsetting the deepening housing recession that is eroding consumer confidence.
“Exports have reached a record for each of the past seven months, the longest surge since 2000,” the newswire goes on, which “may help explain why the Bush administration has suggested it’s comfortable with the Dollar’s drop. It has declined in all but one of the past five years, even as officials say they support a ‘strong’ Dollar.”
What Bloomberg misses, however, is the surge in US import prices right alongside. They rose 9.2% year-on-year in October, the Dept. of Labor said on Friday, up from the 5.2% rate of import inflation seen a month earlier.
Yes, the surge in oil price must account for a big chunk of that rise – and the surge in world oil prices may do more than reflect Dollar weakness alone. The “Peak Oil” theory is starting to make headlines here in London. Not since the Club of Rome forecast a crisis in the global economy in 1972 have fears of an energy crunch become so widespread.
But if you – an oil producing nation – were concerned that one day soon your wells might run dry, wouldn’t you want to get top dollar for the barrels you were selling today? Especially if the very Dollar itself was increasingly losing its value?
“At the end of 2006, China’s foreign exchange reserves were $1,066 billion, or 40% of China’s GDP,” notes Edwin Truman in a new paper for the Peterson Institute. “In 1992, reserves were $19.4 billion, 4% of GDP. They crossed the $100 billion line in 1996, the $200 billion line in 2001, and the $500 billion line in 2004.”
What to do with all those dollars? “If all countries holding dollars came to request, sooner or later, conversion into gold,” warned Charles de Gaulle in 1965, “even though such a widespread move may never come to pass…[it] would probably shatter the whole world.
“We have every reason to wish that every step be taken in due time to avoid it,” the French president advised. But the step chosen by Washington – rescinding the right of all other nation-states to exchange their dollars for gold – only allowed the flood of dollars to push higher.
Nixon’s quick-fix brought such a crisis of confidence by the end of the ’70s, Gold Prices shot above $800 per ounce – and it took double-digit interest rates to prop up the greenback and restore the world’s faith in America’s paper promises.
The real crisis, however – the crisis built into the very system that allows the US to print money which no one else can refuse in payment – was it merely delayed and deferred? Are we now facing the final endgame in America’s post-war monetary dominance?
If these sovereign wealth funds – owned by national governments, remember – cannot tip up at the Fed and swap their greenbacks for gold, they can still exchange them for other assets. BCA Research in Montreal thinks that “sovereign wealth funds” owned by Asian and Arabian governments will control some $13 trillion by 2017 – “an amount equivalent to the current market value of the S&P500 companies.”
And if China doesn’t want to buy the S&P500 – and if Congress won’t allow Arab companies to buy up domestic US assets, such as port facilities – then the sovereign wealth funds will simply swap their dollars for African copper mines, Latin American oil supplies, Australian wheat…anything with real, intrinsic value.
They might just choose to Buy Gold as well. After all, it remains – “in all places and at all times…the immutable and fiduciary value par excellence,” as a French president once put it.
Charles de Gaulle also warned that the crisis brought about by a rush for the exits – out of the Dollar – might just “shatter the world”. It came close in January 1980. Are we getting even closer today?
Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London’s top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian’s views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany’s Der Stern; Italy’s Il Sole 24 Ore, and many other respected finance publications.
See the full archive of Adrian Ash articles on GoldNews.
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One day after we came back, we had to go to the White House for a meeting on oil and the
balance of payments.
And who should be the Undersecretary of the Treasury but my old mentor from Standard Oil
who had explained to me how offshore banking centers worked.
He explained to Herman and me that he told the Saudi Arabians, “You can charge whatever
you want for oil.”
This was right after America quadrupled the price of grain to finance the Vietnam War
in 1972-73, and OPEC responded by quadrupling the price of oil.
The Undersecretary of the Treasury explained to me that they could charge whatever they
wanted for oil.
He knew that the higher they charged, the more the American companies would be able
to charge on domestic oil.
But the Saudis had to recycle all of their dollars into the United States, into Treasury
bonds or the stock market.
“You can’t buy American companies, you can only buy stocks or bonds, and you have to
price your oil in dollars.
If you don’t, we’ll consider that an act of war.”
So here I was right in the middle of understanding how imperialism really worked.
This was not what is in most textbooks.
Most don’t talk about the balance of payments, but the key to financial imperialism is the
balance of payments.
The United States fights to prevent other countries from going back to the gold standard,
because at the time America went off gold in August 1971, every American dollar bill
was backed 25% by gold at $35 an ounce.
Well, finally there was no more surplus gold, and that’s what forced America off gold.
Its price immediately went way up.
As an American citizen, I wasn’t allowed to buy gold.
So I knew it was coming but I couldn’t make any money off it.
Instead I bought Tibetan and Indian art, Asian art primarily.
To make a long story short, I became a financial advisor to the Canadian government as a result
of the stock brokerage work in Montreal.
They said, “We need somebody who knows the American stock and bond market”.
I was at that time the highest paid economist per diem in the United States for financial
So I got a call saying, “They’re going to want to hire you but there’s only one way
in which they can tell how intelligent you are.
Do you know about wine?”
When I grew up at the University of Chicago, the university paid its professors so badly
that to make more money, their ideal was to be a wine steward at the Pump Room, which
was the fancy restaurant in Chicago.
It was featured in the Blues Brothers comedy with John Belushi.
Anyway, I took a sommelier course, got a license, and brought two bottles, one Richebourg and
one La Tâche that I bought in the remainder carton at an uptown store.
I gave them to my host in Ottawa and the government guys said, “That’s the guy we want.”
So I wrote a study that Canada didn’t have to borrow money abroad for the provinces to
They could create their own money.
Basically, what I wrote was the first example of what’s now called Modern Monetary Theory,
that governments can create their own money, their own credit.
They don’t need a foreign-currency backing for it, and so all basically the same circular
flow analysis that I’d developed from my history of thought.
a Physiocratic analysis.
One of the top investment analysts for the Royal Bank decided to become the head of personnel.
He said he thought that it’s a personality problem that economists can’t understand how
the world works, that there’s a particular kind of dumb person that becomes an economist.
It’s a kind of autism, of thinking abstractly without a sense of economic reality.
So he got me an appointment with the Secretary of State of Canada.
In Canada the Secretary of State is in charge of education, films and culture.
So I became Canada’s cultural adviser, which is what I thought was fine all along, and
I wrote a report.
Around that time I also was an economic adviser to the
United Nations Institute for Training and Research, UNITAR, writing their reports on
North/South debt, the foreign debt of third world countries, denominated in dollars, and
how this was deranging their economies.
They had a meeting in Mexico financed by the Mexican president and I was invited down there.
I gave a report saying that there was no way that the third-world debts can be paid.
My first job I worked on at Chase Manhattan was to estimate how much export revenue Argentina,
Brazil and Chile could make.
The idea was that all of their export earnings could enable them to pay interest on money
borrowed from US banks.
The idea was that the entire trade surplus should be pledged as debt service to the American
My job was to think how much that was, and what should Chase’s share be.
So, at the Mexican UNITAR conference, I said that these debts cannot be paid, therefore
they should not be paid, they should be canceled.
There was quite a stir over that.
Well at the end of the conference they had the rapporteurs summarizing the papers.
The US rapporteur said that Dr. Hudson has given a report saying that third-world countries
should export more in order to pay their debts.
I stood up slowly and said, “I must insist that the President of Mexico offer a public
explanation, apology to me and the conference.
This rapporteur has inverted and reversed everything I said.
I believe he has a covert purpose.
I’m pulling out the American delegation and I’m pulling out the Canadian delegation too.
We cannot be a part of this travesty.”
Then I walked out, wondering what’s gonna happen!
The Russian delegate came out laughing and said, “Ah!
You’ve dominated the whole conference.
You’ve made chaos out of it.
You’ve embarrassed the CIA.
This is fantastic.
Here’s my card in New York.”
Later that evening I was told, “You know, they’re looking for you to beat you up.”
Well as it happened an old girlfriend of mine was in a group who were in Mexico for an
They were surrealist artists from Amherst, and they were also doing a surrealist ballet.
So I went to the ballet with them and they said, “Look!
The thugs are there.”
So I hid out with them on the stage in their ballet.
The goons were looking in the audience and I was on the stage and we were all just surrealistic.
Nobody knew how to dance or anything, it was all just surrealistic.
And they, you know, the goons all went home.
I learned that if they can’t find you, they usually give up and leave you alone.
I went back to New York, but I realized that the debt issue was so controversial –
the idea that debt couldn’t be paid.
I spent about a year and I’d got through medieval period, Europe, World War One, and then even
Greece and Rome.
But then I found — it was about 1980, 1981, at that time I sold my house on the Lower
Side and moved into a loft near Wall Street which was very low price there at that time,
(I bought it for $20,000.
Later I sold it for $580,000 but that’s another story), it shows you the real estate in New
York, but at that time nobody wanted to live in lofts, and I wanted a big loft because
I had a big library at that time and a lot of art that I wanted to keep.
So basically I stopped working.
I realized that in the Bible there was the Jubilee Year and there were references to
Sumer and Babylonia and that there was a background of the biblical debt cancellations, almost
the same word for deror in Hebrew is andurarum in Babylonian.
I found that there was all this material and that had never been written in anywhere outside
of the field of assyriology.
There was no economic history of the ancient Near East, no economic history of Sumer and
It was all about religion and some culture, Gilgamesh and all that, but not what I was
most interested in, which was the debt cancellations.
So I wrote a draft of what I could find by 1984.
And one of my friends was the Ice Age archaeologist Alex Marshak.
Although he lived in New York, he was connected to Harvard’s Peabody Museum.
He showed it to the head of the Peabody, Karl Lamberg-Karlovsky, who told me, “This is great!
Nobody else is working on it.”
He appointed me a fellow of the Peabody Museum in Babylonian economic archeology.
I thought, “This is wonderful, this is really what I want to do.”
So I spent the next maybe three years writing the first draft of what became the book that’s
being published in a few months, “… and forgive them their debts”: Credit and Redemption
from Bronze Age Finance to the Jubilee Year.
I submitted it to the University of California Press.
They sent it to scholars to referee, who said that it was impossible that debts could be
Their argument was that if debts were cancelled, who would lend money?
That’s what Rabbi Hillel argued in the Judaic tradition.
I said, “Most debts were not the result of loans.
Most debts were when the crops would fail and the cultivators could not pay the palace
for the fees they’d run up, the rental fees for the land, the fees for the water, for
the draught animals, or the beer lady for the beer that they’d drunk.
So every ruler, when they would take the throne in Sumer and Babylonia, for a thousand years,
would start their rule by cancelling the debts with a clean slate, an amnesty.
It’s the same amnesty of the kind that Egypt’s Rosetta Stone commemorates.
Everybody knows that the Rosetta Stone has trilingual inscriptions of Greek, Egyptian
But few know that it’s a fiscal debt cancellation.
That’s what we call cognitive dissonance, people can’t imagine that the debts were cancelled.
I realized that this was very controversial, and so my Harvard colleague, Karl Lamberg-Karlovsky,
suggested that we hold a series of meetings, and asked me to organize them.
He said that we would hold a colloquium for each controversial chapter of my book.
We decided to have a meeting every two years, and invite every major specialist from early
Sumer, the Neo-Sumerian period, Babylonia, other Near Eastern realms, and Egypt.
Their role was to collect everything they had on whatever the meetings’ topic would
Since I was in New York, I worked with the leading Hebraic linguist Baruch Levine at
I needed someone who was respected in the linguistic field to invite people, because
most Sumerologists, readers of cuneiform, stayed away from economics, because the mainstream
economic idea of how society developed is as if Margaret Thatcher would have created
How would she have done it, or Milton Friedman, or what we call vulgar Marxists who think
that it was the idea that seemed plausible to Engels when he wrote The Origin of the
Family, Private Property and the State.
That’s not how early history actually occurred.
So the Sumerologists wouldn’t talk to economists.
But because I was now an archaeologist with Harvard in the anthropology department, they
agreed to come to the conference.
The first meeting, in 1994, was on privatization in the ancient Near East and classical antiquity.
Harvard published that.
Two years later, we moved on to the second volume, which was on land use and real estate
ownership: How did property ownership come into being.
Then, we had planned from the very beginning for the third colloquium volume.
That was on debt and economic renewal in the ancient Near East.
I asked for everything that people could find about debt cancellations.
We found that these occurred all the way through the first millennium.
Herodotus talked about debt cancellations in Babylonia.
It was a tradition remaining in the Near East for new rulers taking the throne to cancel
agrarian debts, to start their reign with the economy in balance.
Already in Hammurabi’s time 1750 BC, scribes would calculate the growth of compound interest,
and at that time it was 20% interest.
This growth diagram is the same exponential chart that I’d drawn up in the savings banks
in the 1960s to trace the growth of American debt.
So they were quite aware of the fact that debts couldn’t be paid and that, if you
insisted on them be paid, you would have debtors falling into bondage.
So they freed the bond servants, or for debtors had sold their means of self-support, the
land, they returned the land that had been sold under economic distress.
The word “distress” means the collateral that you’ve pledged to a creditor.
It’s an Irish term basically.
So we published that volume.
By that time I’d got the people Baruch and Karl and I had invited – the leaders of
their fields – agreeing with my interpretation.
We then followed it up with another meeting at the British Museum on the origins of money
and accounting, and the idea that money was created not for barter, not for trade in goods
and services, but to denominate debts.
If a cultivator owed a debt, how did he get money?
So we did the history of money.
Then, the one thing we hadn’t done finally was the origins of labor and what it was paid.
That took ten years to complete, and we found that the origins of labor was organized basically
in the palace economy, the palaces and temples.
The main use of such organized labor from the Neolithic and Bronze Age to classical
antiquity was to fight in the army and to work as corvée labor to build public infrastructure.
So how do you get a supply of labor?
You assign it land tenure.
Land rights were created to assign families enough to support themselves so that they
could perform corvée labor and fight in the army.
So taxes came first, then came land tenure, based on what labor you had to supply.
Attempts to substitute someone to work on the corvée became the basis for paying labor.
So all of the payments came from what today would be called the public sector.
That’s not really a very good term.
It was really the palatial sector, the palace and the temples, as opposed to the community-based
family on the land.
So we had a new analysis of the origins of property, not just individuals grabbing,
as Engels had thought.
Property was created by the public sector, by the palaces, as assignment of land as needed.
How much land area is needed in order to supply the labor for the public infrastructure, corvée
work and service in the army?
This was the reverse of what’s taught in economic textbooks today, which is, as I said, how
Margaret Thatcher and right-wingers and Donald Trump would have designed an economy if they
went back in a time machine.
So after organizing and editing these five volumes, I’m now writing my own popular version,
starting with a history of debt.
Then will come Temples of Enterprise, a series of books on classical antiquity.
I’m now following up with Greece and Rome.
Throughout early Greece and Rome, the main fight was between creditors and debtors.
Creditors ended up grabbing the land.
The same fight occurred all the way down through the Byzantine Empire.
The most divisive tension throughout history, from 3rd-millennium Sumer to 2nd-millennium
Babylonia to the 9th and 10th century in the Byzantine Empire is between the palace wanting
to collect taxes and have labor for the army, and creditors wanting this land and labor
This way of getting the economic surplus is not the way that Marx described it as being
obtained under capitalism, by employing labor to produce goods to sell at a profit.
It was by debt and taking interest in ultimately foreclosing in land, which was the real objective.
In the 9th century there was a big
fight against strong royal power.
It was sort of like Donald Trump and the Tea Party Republicans are fighting against the
state, like the privatization in the Soviet Union fighting against the state.
The Byzantine emperor invited general Bardas to a big meal.
The general said, “There’s only one thing that you should do if you want to end the
You have to tax the wealthy families so that they don’t have any surplus at all.
You have to give them so much burden that they can’t fight against you.
You have to prevent the polarization of wealth, because if you let the private sector make
an enormous amount of wealth, they’re going to try to fight against you and keep all the
wealth for themselves that you and the palace are now getting.”
This idea was expressed all the way back in the 7th century 6th century BC with Thrasybulus
and Periander of Corinth.
When Thrasybulus took Periander’s herald to a field of grain and said, “Here’s what you
The land was a field of grain and he took a scythe and he cut off the tops, to make
all the grain of equal height.
So Periander went back and exiled the wealthy families, seized their property.
There was probably a bit of fighting there, and that is basically the fight throughout
So that’s what I’ve been working on for the last 20 years.
Question: How did you take up the interest in Chinese economy?
Hudson: As Samir Amin said at the meeting yesterday, China is the economy that is trying
to be the exception to the Western economic model.
That model is forcing a choice between civilization and barbarism.
The West is moving rapidly into economic barbarism and militarism.
As you can see, the austerity program of the Euro is destroying the economy there.
The United States is cutting taxes on the rich, while indebting the working class very
The one country that is independent and not taking the advice of the World Bank and the
International Monetary Fund is China.
So we’re hoping to do what we can to make the Chinese economy successfully resistant.
What that means is how is China going to handle its real estate, how is it going to handle
its debt, how is it going to handle its tax system.
What I’m trying to do is what David Harvey was trying to do in the speech he gave yesterday:
getting Chinese Marxists to read volume 2 and especially volume 3 of Capital, where
Marx discusses the dynamics of finance.
Marxism is much more than volume 1 of Capital.
You have to read volumes 2 and 3, and especially the elaboration that Marx wrote in the drafts
that he left for volumes 2 and 3, his Theories of Surplus Value where he discusses the history
of economic thought leading up to him.
You realize how Marx was the last great economist in the classical tradition.
He showed that capitalism itself is revolutionary, capitalism itself is driving forward, and
of course he expected it to lead toward socialism, as indeed it seemed to be doing in the nineteenth
But it’s not working out that way.
Everything changed in World War One.
Afterward you had an anti-classical economics, which really was an anti-Marxist economics.
The fight for marginalist theory, for Austrian theory, the fight for junk economics that
we have today, is basically a fight against Marxism, because Marx showed the logical conclusion
to which the Physiocrats, Adam Smith, John Stuart Mill, Ricardo and Malthus, the conclusion
it was all leading was the synthesis that he made.
It was later developed by people like Thorstein Veblen and Simon Patten in the United States.
So I’m hoping that I can contribute what I can to help China’s economy to avoid the financialization
process and dynamic that is destroying the West.
Source: Columbia University (view highlights)
Columbia Law School Scholarship Archive Faculty Scholarship Faculty Publications 2016 A “Barbar A “Barbarous Relic ous Relic”: The F “: The French, Gold, and the Demise of Br ench, Gold, and the Demise of Bretton Woods Michael J. Graetz Columbia Law School, firstname.lastname@example.org Olivia Briffault Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship Part of the International Law Commons, and the Law and Economics Commons Recommended Citation Michael J. Graetz & Olivia Briffault, A “Barbarous Relic”: The French, Gold, and the Demise of Bretton Woods, THE BRETTON WOODS AGREEMENTS, TOGETHER WITH SCHOLARLY COMMENTARIES AND ESSENTIAL HISTORICAL DOCUMENTS, NAOMI LAMOREAUX & IAN SHAPIRO, EDS., YALE UNIVERSITY PRESS, 2019; YALE LAW & ECONOMICS RESEARCH PAPER NO. 558; COLUMBIA LAW & ECONOMICS WORKING PAPER NO. 560 (2016). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2541 This Working Paper is brought to you for free and open access by the Faculty Publications at Scholarship Archive. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Scholarship Archive. For more information, please contact email@example.com. Electronic copy available at: http://ssrn.com/abstract=2827738 1 © 8/19/16 A “Barbarous Relic”: The French, Gold, and the Demise of Bretton Woods By Michael J. Graetz and Olivia Briffault By the time 730 delegates from 44 countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire, in July 1944 to create a new post-war international financial order, two decades had passed since John Maynard Keynes had described the gold standard as a “barbarous relic.” But the French were never convinced: to them, gold was the key to international monetary stability and an essential paving stone for their path to global political prominence. The French attachment to gold dates back as far as the French Revolution. In 1789, the National Assembly began issuing “assignat” or paper money backed by the value of the properties that had been confiscated from the Catholic Church. Rampant inflation and illegal exchanges for old regime coins caused the assignat to depreciate quickly. In an attempt to combat this hyperinflation, Napoleon established official bimetallism in 1803 with the fixing of the ratio of silver to gold at 15:1/2:1. 1 The history of the assignat and the first major hyperinflation instilled in French politicians a fear of hyperinflation and a preoccupation with the stability of gold. 1 Michael Bordo and Finn Kydland, “The Gold Standard as a Rule,” Federal Reserve Bank of Cleveland Working Papers 9205 (1992). Electronic copy available at: http://ssrn.com/abstract=2827738 2 By the end of the nineteenth century, not only France but also the United States and all the powers of Europe had adopted a gold standard that permitted people to convert their money into gold on demand. Gold served as the “nineteenth-century global monetary anchor.”2 Indeed, from the earliest use of bills and coins as money until August 1971 money was a claim on gold.3 On Sunday, August 15, 1971, at 9:00 p.m., Richard Nixon, the thirty-seventh president of the United States, announced what he called a “New Economic Policy.” Most of what he said described domestic economic policy changes designed to help ensure Nixon’s reelection the following year: income tax cuts for the middle-class and for businesses, elimination of an excise tax on automobiles, and most dramatically, a 90-day freeze on all U.S. wages and prices along with a new government agency (the Cost of Living Council) to maintain price stability after the freeze expired. Nixon also announced a ten-percent surcharge on all imports. Finally, in a move that, along with the import surcharge, produced shock and dismay around the world, Nixon announced that the United States, which had long been willing to exchange dollars for gold at the rate of $35 per ounce, would no longer do so routinely at any price.4 Beyond understanding that this meant the U.S. dollar would be devalued, especially against the Japanese yen and the German mark, no one knew exactly what Nixon’s “closing the gold window” implied. But it soon became clear that in a few short paragraphs the president had dismantled the existing international monetary system and abrogated the agreements of Bretton Woods, a key plank of which had required each country to maintain the exchange rate of its 2 Ibid., 81-83. 3 Benn Steil and Manuel Hinds, Money, Markets and Sovereignty (Cambridge: Yale University Press, 2010), 88. 4 Nixon’s speech on going off the gold standard is available at http://www.presidency.ucsb.edu/ws/?pid=3115. See also Richard Nixon, Executive Order 116165 – Providing for Stabilization of Prices, Rents, Wages, and Salaries (August 15, 1971), http://www.presidency.ucsb.edu/ws/?pid=60492 and Proclamation 4074 – Imposition of Supplemental Duty for Balance of Payments Purposes (August 15, 1971), http://www.presidency.ucsb.edu/ws/index.php?pid=107023. Electronic copy available at: http://ssrn.com/abstract=2827738 3 currency within one percent of a specified value of gold. What would follow, however, was unknown. The French knew what they wanted: a return to a gold standard with its price doubled. No topic sounds more grounded in economics than international monetary arrangements. But for the French—without denying the critical economic role of international currency relationships— international politics had long played a crucial role. To achieve its political and economic objectives, the French hungered for gold to be reinstated as the centerpiece of any worldwide monetary agreement. Before Bretton Woods Richard Nixon was not the first U.S. president to abandon the gold standard. In 1933, shortly after Franklin Roosevelt took office, the U.S. – faced with a growing imbalance of payments with imports exceeding exports despite large tariffs – dissolved the link between the dollar and gold. By executive order, Roosevelt required private citizens to turn their coins and bullion over to the Federal Reserve and prohibited any exports of gold. Congress then followed with a law overriding the gold payment requirements of public and private contracts, a decision that was ratified by a 5-4 vote in the Supreme Court two years later.5 Roosevelt had become convinced that his only choice was between devaluation of the dollar or domestic deflation, and he preferred the former, a sentiment shared by the twenty-five other nations, including the UK, that had already devalued and de-linked their currencies from gold beginning in 1931.6 The French, however, stayed on the gold standard, and that produced serious imbalances between the value of the French currency and those of the U.S. dollar and UK sterling. By going 5 Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton: Princeton University Press, 2013), 25. 6 Ibid. 4 off the gold standard, the U.S. and UK had devalued their currencies – lowering export prices and raising import prices — while the French franc stayed strong and the French economy continued to stagnate.7 This imbalance was further exacerbated by fears among owners of French assets following the formation in 1936 of a French socialist Popular Front government led by Léon Blum. In combination, these events induced major gold outflows from France and forced the French also to devalue their currency in 1936 but without abandoning the franc’s relation to gold.8 In 1934, Roosevelt, using powers Congress had granted him, set the price of gold at $35 an ounce, devaluing the dollar by nearly 60 percent.9 (Gold’s previous price had been $20.67 an ounce.10) This sharp devaluation was intended to stabilize domestic prices, improve the U.S. economy, and provide greater liquidity to the capital markets. Instability in currency markets, which some labeled “currency wars,” led in September of 1936 to what Roosevelt described as a “gentleman’s agreement” (certainly not a treaty) among the U.S., the UK, and France under which the Americans and the British agreed not to contest a 30 percent devaluation of the franc.11 The initial French draft of this “Tripartite Agreement” had proposed a system where the franc, the dollar, and sterling would fluctuate within narrow bounds and the three countries would agree not to devalue except by mutual consent. The French aim was to stabilize the relationships among the currencies and to restore gold convertibility.12 The Americans, however, refused to agree to bilateral rates or to return to a firm link between the dollar and gold, so the final Tripartite Agreement simply stated the three nations’ desire to 7 Michael D. Bordo, Dominique Simard, and Eugene White, “France and the Bretton Woods International Monetary System: 1960 to 1968,” NBER Working Paper Series 4642 (1994). 8 Steil, The Battle of Bretton Woods, 32. 9 Roosevelt’s gold proclamation is available at http://www.presidency.ucsb.edu/ws/index.php?pid=14750. 10 Steil, The Battle of Bretton Woods, 28. 11 Ibid., 32. 12 Bordo, Simard, and White, “France and the Bretton Woods International Monetary System,” 5. 5 minimize exchange rate fluctuations (limit devaluations) and continue free trade.13 The agreement, however, required subscribing nations to agree to avoid competitive depreciations of their currencies and to maintain currency values at existing levels (after the 30 percent French devaluation).14 The Tripartite Agreement, coupled with other economic measures in the U.S., helped stabilize the currencies, at least in the short term, but by 1938, the French had to devalue again.15 While the French held on to the gold standard in the interest of currency stability and urged a return to a proper international gold standard, Roosevelt was determined to achieve both monetary stabilization and the dominance of the U.S. dollar by establishing the dollar price of gold as an essential monetary benchmark.16 Years later, at Bretton Woods, the stability of the dollar – not a link to gold – became the key to international monetary stability. And the same divergence in French and U.S. attitudes towards the monetary role of gold would be repeated in the aftermath of Nixon’s shattering of Bretton Woods. Bretton Woods A monetary and financial conference held in Bretton Woods, New Hampshire to shape the post-war Western economic order and open international trade met in 1944. The most important questions at the conference were with respect to the governance and powers of the international institution that would become the International Monetary Fund (IMF), how to 13 The Tripartite Monetary Agreement is available at http://www.bis.org/publ/arpdf/archive/ar1937_en.pdf. 14 Ibid. 15 Steil, The Battle of Bretton Woods, 33. 16 Ibid. The US increasingly took control of the gold standard, as the US economy was nearly three times larger than that of either France or Germany. See also Robert A. Mundell, “A Reconsideration of the Twentieth Century,” Prize Lecture: Department of Economics, Columbia University (December 8, 1999). 6 create international liquidity, and how countries could gain access to that liquidity.17 Although 730 delegates from all 44 allied countries met at Bretton Woods, the United States and United Kingdom dominated the accords and economic agreement.18 The leading figures drafting and discussing how best to organize the post-war economic order were Harry White from the United States and John Maynard Keynes from the UK. Each drafted their version of an economic agreement and much of the conference was devoted to arguing over their plans. The White Plan advocated a central status for the dollar as the world’s sole surrogate for gold, but conceded that the dollar should be backed by gold (reflecting the U.S.’s large gold holdings).19 Keynes, on the other hand, was repelled by the idea of a gold standard.20 The two plans overlapped, however, in many other features: an end to the economic warfare of the 1930s; the need for an institutional forum for international cooperation on monetary matters; and fixed exchange rates. The governments agreed that, absent floating exchange rates, all states needed the assurance of liquidity through an adequate supply of monetary reserves.21 The big disagreement was whether that assurance should be, as proposed by Keynes, provided by a world bank, which could create new reserves called “bancor,” or a borrowing mechanism through what became the IMF, as preferred by White.22 After bargaining for some concessions, the other countries at Bretton Woods largely agreed to American proposals for the IMF and World Bank in the expectation that most of them would be net borrowers and that the United States would be the largest creditor. So, the final agreement ended up being closer to the White Plan, reflecting U.S. preferences, with the dollar exchangeable for gold at the fixed price of $35 an ounce. 17 Steil, The Battle of Bretton Woods, 233. 18 Ibid., 229. 19 Ibid., 128. 20 Ibid., 138. 21 Ibid., 148. 22 Ibid., 143. 7 The French had also drafted an economic plan that they presented at the conference. The French Plan of 1943, written by Hervé Alphand and André Istel, was designed to create balance and parity among participating countries – relying on a gold standard.23 The French plan would have had participating countries fix their official currency values by reference to the currencies of other countries – official values that must be maintained and could be changed only after consultation with all other participating countries.24 The French plan also would have required each member to hold each other’s countries’ currencies to increase liquidity. The French, for example, would hold dollars and other currencies, especially those of European countries recovering from World War II. Pegging all international currencies with reference to the dollar meant that gold could be used as an international reserve asset and as a means of settlement.25 The French hoped that the agreement would define currencies in terms of a fixed weight of gold.26 The French also proposed a Monetary Stabilization Office to facilitate currency clearings, serve as a depository for collateral, and become the location of international consultation.27 The French would have placed gold, not the U.S. dollar, at the center of the world monetary system. That did not happen. The French plan had virtually no impact on the structure of the IMF or the World Bank. The Articles of Agreement at Bretton Woods, however, did define international currencies with reference to gold, and members agreed to declare a par value and maintain it within a one percent margin.28 Members also agreed to make their currencies convertible for current account transactions. The U.S. pegged the price of gold at $35 an ounce.29 Other members would then 23 Bordo, Simard, and White, “France and the Bretton Woods International Monetary System,” 3. 24 Ibid. 25 Ibid. 26 Ibid. 27 Ibid. 28 Steil, The Battle of Bretton Woods.. 29 Bordo, Simard, and White, “France and the Bretton Woods International Monetary System,” 6. 8 intervene in foreign exchange markets by either buying or selling dollars to maintain the value of their currency within the one percent margin. The last attempt the French made to shape these international arrangements related to gold quotas. Each country’s gold quota determined their position in the directorship. The French wanted a more important gold quota so they could hold a rank in the directorships of the IMF and World Bank. The first three ranks were the U.S., the UK, and Russia. The French wanted the fourth rank, but it was given to China whose economy was growing more quickly.30 Pierre Mendès, the head of the French delegation, complained, “the Americans have taken key positions which are against the French.” To placate the French and affirm the US commitment to France, Henry Morgenthau, the U.S. Treasury Secretary and President of the Bretton Woods conference, added a fifth directorship for the French up from the previously planned three. He responded to Mendès, “I told you I would not go to bed until I tried to correct [the] impression that the American delegation was unfriendly to France.”31 From its inception, the Bretton Woods system became an asymmetrical dollar-gold system.32 Instead of turning dollars into gold and holding gold, countries held dollars, and the dollar became both the private and official international currency.33 As the system moved farther away from a gold standard and closer to a “dollar standard,” there was little the French, who so wanted a return to gold, could do. France’s reconstruction problems – including chronic external and internal imbalances – limited its influence in the postwar monetary system. Because of its 30 Steil, The Battle of Bretton Woods, 233. 31.Ibid. 32 Ibid. 33 Ibid. 9 weak economy, France had to devalue the franc multiple times to comply with the Bretton Woods agreement. 34 The U.S. – by far the wealthiest and most stable Western country – basically dominated international monetary arrangements. The Bretton Woods system, therefore, never actually became a convertible system of international currencies into gold as the agreement seemed to imply, but instead was effectively a dollar standard, with the dollar pegged to a fixed price of gold. “Banaliser le Dollar” If French policymakers had any policy priority in the period between Bretton Woods and when Nixon closed the gold window in 1971, it was to “banaliser le dollar” (dethrone the dollar).35 By 1947, postwar difficulties and domestic reconstruction needs, along with troubles for the British around the world (especially in India, Greece, and Palestine), had undone the British Empire and simultaneously any potential for sterling to compete with the dollar as an international reserve currency.36 The French viewed the British as overly sympathetic to American needs. The beginning of the Marshall Plan the following year, coupled with large U.S. military expenditures, provoked an unprecedented outflow of dollars from the U.S. The French regarded the enormous power the U.S. held in the international community as an attempt to control the world economy for selfish purposes. Over the next decade, the fragility of the Bretton Woods arrangements became apparent. In 1959, the economist Robert Triffin told Congress that the use of “national currencies in 34 Ibid., 6. 35 Harold James, “The Multiple Contexts of Bretton Woods,” Oxford Review of Economics Policy 28:3 (October 2012), 91. 36 Steil, The Battle of Bretton Woods, 309-311. 10 international reserves” was a “built in” destabilizer to “world monetary arrangements.”37 Foreign governments that accumulated dollars as reserves could not use them at home, so they either lent any dollars in excess of the costs of the imports they purchased back to the United States or held them as reserves. The Triffin Dilemma, as it became known, is that there was no practical way for the U.S. to provide sufficient dollars to satisfy the world’s liquidity needs for trade and international capital transactions and simultaneously limit the number of dollars to guarantee that they could be redeemed for gold at a fixed price.38 Jacques Rueff, an extremely influential French economist committed to a gold standard, agreed. Here is how Rueff described the problem of deficits in the U.S. balance of payments while the dollar serves as the international reserve currency: The United States…pays the creditor country dollars, which end up with its central bank. But the dollars are of no use in Bonn, or in Tokyo, or in Paris. The very same day, they are re-lent to the New York money market… So the key currency country never feels the effect of a deficit in its balance of payments. And…there is no reason whatever for the deficit to disappear… [I]f I had an agreement with my tailor that whatever money I pay him he returns to me the very same day as a loan, I would have no objection at all to ordering more suits from him.39 In theory, dollars could be converted into gold at $35 an ounce, but it did not take long for the number of dollars in circulation to overwhelm the capacity of the U.S. to redeem them in gold. In 1962, British Prime Minister Harold MacMillan told President Kennedy that most of the world’s monetary difficulties would be solved if the U.S. doubled the price of gold to $70 an ounce, but Kennedy regarded such a devaluation as signaling U.S. weakness and he refused.40 Nor was Kennedy willing to accept austerity at home, so the U.S. kept expanding its money 37 Ibid., 333. 38 Steil, The Battle of Bretton Woods, 333. See also Robert Triffin, Gold and the Dollar Crisis: The Future of Convertability (New Haven: Yale University Press, 1960). 39 Jacques Rueff and Fred Hirsh, “The Role and the Rule of Gold: An Argument,” Princeton Essays on International Finances 47 (June 1965), 2-3. See also Jacques Rueff, The Monetary Sin of the West (New York: Macmillan, 1972), available at http://mises.org/library/monetary-sin-west. 40 Ibid., 334. 11 supply. By the mid-1960s, the dollar shortage of the early 1950s had turned into a dollar glut.41 And the ratio of U.S. gold reserves to the number of dollars circulating through the world had shrunk. The French, unsurprisingly, were unhappy. More than 30 countries around the world had devalued their currencies since the war. France, which had faced ongoing economic difficulties including budget deficits and trade imbalances, had devalued its franc numerous times by 1958. The rebellion of a division of the French Army in Algiers in May of 1958 revealed the weakness of the French Fourth Republic. This attempted coup led to the return of Charles de Gaulle to political power. De Gaulle blamed the constitution and the institutions of the Fourth Republic for France’s economic and political weakness. He drafted a new constitution with Michel Debré that emphasized a strong executive in a presidential regime with bicameralism. This new constitution ushered in the French 5th Republic. De Gaulle wanted to create a new image of France: politically unified, economically strong, and internationally powerful.42 De Gaulle addressed the country’s ongoing deficits through tax increases, large cuts in government spending, and another devaluation of the franc in 1958. 43 This austerity, de Gaulle believed, was necessary to restore France to its rightful place at the center of world affairs and to offset the predominance of the United States. De Gaulle appointed Jacques Rueff to lead a commission to pave a path to economic expansion, which he believed to be the first step toward French domination. Rueff concluded that the major obstacle to French economic strength was that the United States blocked and manipulated interest rates.44 Returning to a real gold standard and a strong French franc was a centerpiece of his plan to regain economic domination. 41 Benjamin J. Cohen, “Bretton Woods System” in Routledge Encyclopedia of International Political Economy, ed. R.J. Barry Jones (Routledge, 2002). 42 Bordo, Simard, and White, “France and the Bretton Woods International Monetary System,” 6-7. 43 Cohen, “Bretton Woods System.” 44 Marc Flandreau, Money Doctors: The Experience of International Financial Advising 1850-2000 (New York: Routledge, 2003). 12 The Treaty of Rome, signed in 1957 by six countries – France, Germany, Italy, the Netherlands, Belgium, and Luxembourg – had liberalized and expanded trade, especially within Europe, and by the mid-1960s the European economies were enjoying robust postwar economic growth.45 This was accompanied by growing European concerns with domination by the U.S. government and by American multinationals. No one expressed this unease more forcefully than Charles de Gaulle. “The purpose of Europe,” he said, “is to avoid domination by the Americans or Russians.” “Europe,” he added, “is the means by which France can once again become what she has not been since Waterloo, first in the world.”46 At a press conference on February 4, 1965, de Gaulle urged major changes in international monetary arrangements. He described a monetary system based on any single nation’s currency as a danger to the world and sang praises to gold.47 Gold, he said, “does not change to nature” and is “in all places and at all times, the immutable and fiduciary value par excellence.”48 In his memoir, de Gaulle was even more explicit. He described the countries of the West as having “no choice” but to accept the international monetary system of Bretton Woods in which “the dollar was automatically regarded as the equivalent of gold.”49 This, de Gaulle said, enhanced American hegemony, and the surplus dollars exported by the U.S. to France, he added, “put a strain on our currency” that benefited only the Americans. “[T]he monumentally overprivileged position that the world has conceded to the American currency since the two world wars,” he said, “left [America] standing alone amid the ruins of others.”50 So, beginning in 1965, the French adopted as official policy the conversion of its dollar reserves into gold to induce the 45 James, “The Multiple Contexts of Bretton Woods,” 36-37. 46 James, “The Multiple Contexts of Bretton Woods,” 37. 47 See Charles de Gaulle, “Monetary Crisis Ghost of 1965,” https://www.youtube.com/watch?v=Q9r1NLMFixo. 48 Rueff and Hirsh, “The Role and the Rule of Gold,” preface. 49 Charles de Gaulle, Memoirs of Hope: Renewal and Endeavor, trans. Terrence Kilmartin (New York: Simon and Schuster, 1972), 371-372. 50 Ibid., 371. 13 U.S. to begin reform of the international monetary system. 51 The U.S. and France were on a collision course over their differing visions of international monetary reform and over the role of gold.52 France had become the principal antagonist of the U.S. in monetary affairs. This was in sharp contrast to Germany, which relied heavily on the U.S. military commitment. The German Bundesbank promised the U.S. that it would hold onto dollars. Given the inflation that the U.S. experienced in the 1960s and the accompanying influx of dollars to Germany, this was a decision the Germans came to regret. In a 1970 interview, Karl Blessing, president of the Bundesbank, said, “we should aggressively have converted the dollars into gold until [the Americans] were driven to despair.”53 The French were convinced that the Germans were being manipulated by American desires. The very different frustrations of the French and the Germans inspired both to seek a more coordinated international financial policy; this, in turn, would, two decades later, result in the creation of the euro, in part at least, as a counterweight to the dollar. In 1961, nine central banks from the U.S. and eight European countries created the London Gold Pool in an attempt to maintain fixed convertible values for their currencies and the $35 price for an ounce of gold.54 Half the required supply of gold for the pool came from the U.S. But by 1965, the pool could not stem the outflow of gold. The world gold supply had not increased to match the growing supply of dollars, the U.S. deficit had ballooned, and U.S. inflation was increasing as a result of spending on both social programs and the Vietnam War. By the late 1960s, the Bretton Woods agreement had largely unraveled. 51 Bordo, Simard, and White, “France and the International Monetary System,” 12; James, “The Multiple Contexts of Bretton Woods,” 64. 52 Bordo, Simard, and White, “France and the International Monetary System,” 14. 53 James, “The Multiple Contexts of Bretton Woods,” 64. 54 Peter M. Garber, “The Collapse of the Bretton Woods Fixed Exchange Rate System” in A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, eds. Michael D. Bordo and Barry Eichengreen (Chicago: University of Chicago Press, 1991), 464. 14 De Gaulle’s attempts to control the international monetary system, however, did not stop at simply controlling imports and exports of gold. Beginning in 1965, de Gaulle began exchanging France’s dollar reserves for gold. This was de Gaulle’s attempt to punish the British, as he believed their economic policies were also being unduly influenced by the United States. In 1966 France stopped contributing to the international gold pool, forcing the U.S. to increase its contribution to the gold pool by the amount previously supplied by France. By 1966, gold accounted for more than 70 percent of French international holdings. 55 When the U.S. rebuffed France’s pressure to devalue the dollar by increasing the price of gold, the French continued accumulating gold. President de Gaulle refused to devalue the franc calling the idea, “the worst possible absurdity,” a refusal that was widely criticized by the international community.56 French economic and political difficulties then created large imbalances of payments for France that produced substantial reserve losses. After de Gaulle retired to his country home in April 1969, the newly elected Georges Pompidou was soon forced to devalue the franc. The Chicago Tribune called the decision a thankful “break with de Gaulle’s monstrously absurd foreign exchange policy.”57 By May 1968, the Gold Pool had completely fallen apart and had been replaced by a twotier gold system with separate private and public gold markets. Governments traded gold in the public market at a fixed price while in the private market the price of gold was set by supply and 55 Bordo, Simard, and White, “France and the International Monetary System,” 12. 56 “After the French Devaluation,” Chicago Tribune, August 13, 1969, 24. 57 Ibid. The 1969 devaluation was particularly important as parity between the French franc and the German mark was an important topic in the 1969 German elections. Germany was debating whether it should revalue the mark upwards. Germany welcomed the French devaluation because it removed the disparity of a key currency with the mark and suggested that an upwards revaluation was “wholly unnecessary.” Germany relied heavily on its relationship to the franc as it struggled between national pressures to maintain the mark’s value and the American desire for the mark to be revalued upwards. 15 demand.58 The next year, the Gold Pool nations stabilized the price of gold by agreeing to stop selling gold in private markets and by allowing the price of gold for nonmonetary transactions to fluctuate.59 In the meanwhile, private gold markets faced separate pressures. Economic sanctions against South Africa for its policy of apartheid and its relations with the Soviet Union made the Krugerrand – which accounted for close to 90% of the global gold coin market — an illegal import in many Western countries (including the United States). This limited the supply of gold, and contributed to anxiety about the status of gold in the international monetary system.60 The reduced supply of gold from South Africa was accompanied by speculation about a potential devaluation of the dollar. In March 1968, the IMF abandoned a single fixed price for gold and reversed its policies regarding purchases of gold from South Africa.61 By September 1969, Germany informed the IMF that it was unable to maintain values for the mark within the prescribed limits around par value.62 A year and a half after that, in a contentious decision, especially upsetting to the French, Germany decided to float the mark.63 French Minister of Finance Giscard D’Estaing then declared, “The world monetary system must be set in concentric circles: the first one being gold, and then, the second, if necessary, recourse to deliberate and concerted creation of either reserve assets or credit facilities. The inner circle is gold. Experience in recent years has shown us that, aside from any theoretical preference, gold remains the essential basis of the world payments system.”64 According to D’Estaing (in a speech to the National Assembly in May 1971), the French 58 Margaret de Vries, The International Monetary Fund 1966-1971, Volume I: Narrative (Washington D.C.: International Monetary Fund, 1976). 59 Ibid. 60 Ibid. 61 Ibid. 62 Garber, “The Collapse of the Bretton Woods Fixed Exchange Rate System.” 63 Ibid. 64 De Vries, “Volume I: Narrative.” 16 Government had three main concerns: to protect the French economy from the international upheaval in currency markets; to fix the roots of international monetary problems; and to ensure that any measures taken in response to international monetary difficulties not compromise the French desire to create a monetary and economic union in Europe.65 D’Estaing criticized Germany’s decision to float its currency – complaining that it was not a European community decision and would not help in creating a European economic monetary union.66 D’Estaing was willing instead to accept a collective revaluation of international currencies.67 In such a case, the European countries would compensate for the United States’ monetary inflation by deflation in Europe.68 But D’Estaing would accept this sacrifice only if it meant continuing the gold standard. By the late 1960s, it was unmistakable that U.S. gold reserves, which had been falling relative to U.S. dollars since 1957, were inadequate to fund convertibility of dollars into gold at the fixed price of $35 an ounce.69 In 1968, riots in both France and the U.S. essentially took international monetary reform off the agenda. In 1969, George Pompidou succeeded Charles de Gaulle as president of France, and Richard Nixon succeeded Lyndon Johnson in the U.S. Domestic disorder on both sides of the Atlantic was a harbinger of the next decades’ social, economic, and international upheavals. In the period leading up to Richard Nixon’s August 1971 policy shift, the U.S. balance of payments deteriorated substantially: the $3.2 billion deficit in the second quarter of 1971 exceeded the deficit for all of 1970. In the third quarter, the deficit was $3.1 billion, hardly better. One of the few constants, however, was the continuing divergence of American and French views concerning the proper role of gold in international monetary affairs. 65 “La politique étrangère de la France: textes et documents,” dir. de publ. Ministère des Affaires Etrangeres. Paris: La Documentation Française, Octobre 1971. “Déclaration de Valéry Giscard d’Estaing à l’Assemblée nationale” (12 Mai, 1971), 162-167. 66 De Vries, “Volume I: Narrative.” 67 Ibid. 68 Ibid. 69 Bordo, Simard, and White, “France and the International Monetary System,” 18 and Figure 5. 17 After the “Nixon Shock” In August 1971, French president Pompidou sent a battleship to New York harbor to remove France’s gold from the vault of the New York Federal Reserve Bank and to transport it to the Banque de France in Paris. Soon thereafter, gold accounted for 92 percent of French reserves. On August 11, the British requested that the Treasury remove the $3 billion of gold from the U.S. depository of Fort Knox to the New York Federal Reserve vault, where the gold of foreign governments was stored. As Paul Volcker, who was then treasury undersecretary for monetary affairs, put it: “If the British, who had founded the system with us, and who had fought so hard to defend their own currency, were going to take gold for their dollars, it was clear the game was indeed over.”70 When Nixon spoke on August 15, 1971, the U.S. held less than 10,000 tons of gold, less than half of what it once had.71 Nixon’s August 1971 decisions caught foreign government by complete surprise. They also surprised most U.S. policymakers and officials. Nixon’s speech and the policies it announced had been suggested to him a few weeks earlier by his charismatic Treasury Secretary, John Connally, and the details had been developed at a meeting of Nixon’s economic advisors who had been sequestered at Camp David the weekend before Nixon’s Sunday night address. As Paul Volcker had told the group, billions might be made with advance knowledge of what the president was planning to do. The necessary secrecy, however, had meant that both technical and strategic planning for its aftermath could not happen until the new policies had been announced. In the weeks following Nixon’s announcement, Connally, Volcker, and other administration officials spent much of their time traveling to foreign capitals attempting to assuage foreign 70 Paul Volcker and Toyoo Gyohten, Changing Fortunes: The World’s Money and the Threat to American Leadership (Three Rivers Press, 1993), 77. 71 One metric ton of gold is composed of 32,150 troy ounces. 18 leaders who were apoplectic about the import surcharge and insecure about the new U.S. monetary policy – whatever that might be. Within the U.S. government, efforts to fashion a new international monetary agreement did not jell until mid-November 1971 in anticipation of a meeting of the G-10 in Rome later that month. The U.S. position was heavily influenced by the need for the French – its principal antagonist – to agree. For economic reasons primarily having to do with trade, the U.S. wanted a substantial devaluation of the dollar vis a vis the German mark and the Japanese yen. For its trade policy, the French needed to maintain the relationship between the franc and the mark, but because its trade with the U.S. was relatively small, France had little concern about the relationship of the franc and the dollar. The French government, however, cared deeply about the price of gold and, unsurprisingly, wanted to preserve an official relationship between the U.S. dollar and gold. Not only did the French government hold the bulk of its official reserves in gold, but virtually every French resident also had a little gold stashed away. On November 29, 1971, the arguments and discussions culminated in a meeting of the finance ministers of the world’s ten richest countries (the G-10) in Rome. At the Rome meeting, the chairmanship, which rotated, was held by the U.S.’s John Connally and he insisted, so that he could be “impartial,” that Paul Volcker would present the U.S. position. Volcker then announced that the U.S. – which had refused since the 1930s to change the official price of gold from $35 an ounce – would accept an upward revision of that price and would eliminate the import surcharge in exchange for an appreciation of other OECD currencies by a weighted average of 11 percent. This devaluation of the dollar was greater than the other G-10 countries expected, and not well 19 received by the other finance ministers. The only real outcome of the meeting was an agreement to hold another meeting the next month in Washington, DC.72 In the interval between the two meetings, crucial negotiations took place between Nixon and Pompidou in the Azores. Pompidou began their meeting with a “Gaullist lecture on gold and the evils of the dollar standard.”73 Ultimately, however, Pompidou agreed to a rise in the price of gold from $35 to $38 an ounce, a rise of 8.5 percent, significantly less than the 11 percent the U.S. had wanted. Soon thereafter, the G-10 meeting took place at the Smithsonian Castle on the Mall. The negotiations, as in Rome, centered on trade agreements and tariffs, the need to devalue the dollar, future exchange rates, and the convertibility of the dollar into gold.74 The U.S. was adamant about its desire to move away from gold. The French were equally adamant to the contrary. The difference in French and U.S. policies were neither new nor driven solely by the economics of the time. French policy was, to be sure, based upon the longstanding French position. By December 1971, the French held enormous gold reserves, but had limited international economic power. The U.S. was in the opposite position: its gold reserves had dwindled, but it still had immense international economic sway. The U.S. was determined both to maintain its global economic dominance and to improve economic conditions at home. The first issue discussed at the Smithsonian meeting was gold convertibility. The French insisted on maintaining gold convertibility, arguing that such convertibility was essential to a fixed currency parity system, and that under the IMF agreement the U.S. was required to 72 These events were related in Edwin S. Cohen, A Lawyer’s Life Deep in the Heart of Taxes (Tax Analysts, 1994) and the collections of his papers at the University of Virginia Law Library, Box 102, “Institutional Monetary Issues.” Cohen’s account is confirmed in Volcker and Gyohten, Changing Fortunes. 73 Volcker and Gyohten, Changing Fortunes, 88-89. 74 Garber, “The Collapse of the Bretton Woods Fixed Exchange Rate System.” 20 maintain to fixed currency relationships. 75 The French expressed their dismay that the U.S. had violated international law, and were determined not to reward the U.S. for breaking its international commitments.76 For the French, Nixon’s unilateral action was just one more example of how the U.S. behavior transgressed the laws that all other countries must obey. The only way to force the U.S. to act like other countries, the French believed, was to force the U.S. to return to a gold standard. The French argued that, although the dollar was clearly overvalued, the only proper way to devalue the dollar was to adjust the price of gold – otherwise the system would remain biased in the U.S.’s favor. 77 When countries allow their currencies to stray too far from the price of gold, the French insisted, they must revalue their currency.78 Georges Pompidou criticized the American approach, “I cannot conceive that the U.S. thinks it can make up the deficit in its balance of payments with exports to Europe. The U.S. balance-of-payments deficit is an American problem.”79 After Nixon suspended convertibility in August 1971, the French had urged Europe to make the U.S. pay.80 Paul Volcker, then undersecretary of the treasury, said that the fundamental structure of the IMF would have to be changed for convertibility to be maintained.81 Volcker believed that gold should no longer play a role in the international monetary system and instead that SDRs (Special Drawing Rights issued by the IMF to play the role of an alternative reserve currency) 75 Jacques Amalric, “Les dirigeants américains paraissent résignés à la dévaluation du dollar,” Le Monde, 17 August 1971, 1. 76 Ibid. By participating in and creating the Fund, the U.S. had promised to tie the dollar to gold; by stopping dollar convertibility the U.S. effectively broke its promise. 77 Jacques Rueff, “La Reevaluation Des Monnais, Faux Problem,” Le Monde, September 10, 1971, reporting the French insistence that the way to fix Bretton Woods would be to enlarge the margin of fluctuations and change the price of gold – not remove gold from the picture. 78 Ibid. 79 Clyde H. Farnsworth, “Europeans Re-Examine Goals,” New York Times, January 14, 1973. 80 Rueff, “La Reevaluation Des Monnais, Faux Problem.” 81 Edwin S. Cohen, “The Highlights of the Group of Ten Deputies Meeting at the International Monetary Fund at 11:00 am, November 16, 1971,” in International Monetary Problems, f.202, ed. Special Collections (University of Virginia Law School, December 16, 1971). 21 should be extended.82 Volcker proposed to increase liquidity, but without any link to gold, and he insisted that in order to maintain the necessary liquidity the U.S. must be free to adjust its own exchange rate. The French rejected Volcker’s arguments, continuing to insist on a return to gold convertibility in order to limit the role of the U.S. dollar in international economic arrangements. The U.S., having consistently rejected French proposals for monetary reform since before the Tripartite Agreement, held firm. It was difficult for the French to gather much support for their position. If gold remained at the center of the international monetary system and the U.S. doubled or even tripled the price of gold in dollars, other countries’ exchange rates with the dollar would also have to change – many by a large amount. Unsurprisingly, the discussion at the Smithsonian then turned to the question of fixed versus floating exchange rates. By the time of the Smithsonian meeting, not only Germany but also the UK, Canada, and several other nations had begun to float the value of their currencies against the dollar as fixed exchange rates had been difficult to maintain with the ongoing decline in the value of the dollar. The U.S. had already decided to lift its import surcharge for nations that agreed to float their currencies against the dollar and was also interested in floating the dollar.83 But the French were adamantly opposed to floating rates. In the French view, floating exchange rates caused unnecessary instability and price uncertainty.84 On the other hand, fixed exchange rates created a need for the U.S. to constantly adjust its domestic economic policies and increased the likelihood that the U.S. would erect and maintain significant trade barriers to 82 Ibid. 83 Department of the Treasury, “Memorandum: Preliminary Notes on International Monetary Problems,” ed. Edwin S. Cohen (Washington DC: University of Virginia Law School, September 16, 1971). 84 Ibid. 22 solve its balance of payment deficit problems.85 The French thought that a two-tier market for gold would solve this problem: governments would privately trade gold and francs at a fixed exchange price, but in the public market supply and demand would determine the price of gold.86 According to the French, floating rates were highly selfish. A Le Monde article from September 1971, reflecting French government opinions on floating rates, compared floating exchange rates to a state of anarchy.87 The article suggested that by floating a currency a country is freer to pursue any policy it would like – as opposed to being constrained by the linkage of its currency to that of other countries.88 Flexible rates allow countries to pursue autonomous economic and monetary policy. The French insisted that floating rates, free from fixed links to the currencies of other countries, would in the long run create even greater international disorder. A central reason that the French wanted to maintain fixed exchange rates was that fixed rates would make the transition to a European economic union, which could compete against the United States, easier. The French believed that Europe needed a common currency.89 The French regarded a link to gold as helping to facilitate the monetary unification of Europe, and with monetary unification, the French expected greater political unification and enhanced French influence in world affairs. 90 An “écu” (European Currency Unit) could be linked to gold and might replace the ubiquity of the dollar in international transactions. 91 Transition to the écu would be made easier by maintaining fixed exchange rates. The French planned to have the écu defined by its relationship to gold and guaranteed by a European reserve fund.92 A European 85 Ibid. 86 De Vries, “Volume I: Narrative.” 87 Paul Fabra, “La Faillite Du Système Monétaire,” Le Monde, September 25, 1971 88 Ibid. 89 Léon Lambert, “Une Monnaie Européen Tout De Suite,” Le Monde, 20 December 1971. 90 Ibid. 91 Ibid. 92 Ibid. 23 currency would then help France counterbalance the U.S. in international economic matters by providing the world an alternative currency that might compete with the dollar. In a final attempt to salvage the Bretton Woods agreement, the negotiations at the Smithsonian meeting concluded with the result that the Azores agreement between Nixon and Pompidou had preordained: the dollar was pegged to gold at $38 an ounce (up from the previous $35) with other countries agreeing to appreciate their currencies by a fixed amount with respect to the dollar. This resulted in an official devaluation of the dollar of 8.57 percent, less than the U.S. had proposed at Rome, but more than other countries had initially anticipated. 93 The G-10 also set wider margins for currency fluctuations based on the new dollar value. The group agreed to help balance the world trading system through special drawing rights (SDRs) issued by the International Monetary Fund.94 The U.S. also agreed to eliminate its new 10 percent surtax on imports. President Nixon announced the agreement at the Smithsonian’s Air and Space Museum, then next door to the Castle where the meetings had been held. The French were still not content. They continued to insist that the U.S. return to the gold standard, but the U.S. would not. For the next decade, the French would continue to blame any failures of the Smithsonian agreement on the U.S. refusal to return to a gold standard. The Smithsonian agreement did not long survive. The rather small margins of currency fluctuations agreed to proved impossible to maintain and as the price of dollars in the free market fluctuated, this put pressure on its official price for exchange. As early as 1972, the French were again criticizing American monetary policy. The French continued to insist that the U.S. should buy surplus dollars from European nations with gold, but the U.S. no longer held enough gold to 93 Garber, “The Collapse of the Bretton Woods Fixed Exchange Rate System.” 94 Ibid. 24 do that. 95 Nor did the U.S. have any intention to do so. The French said: “The dollar cannot be a truly international currency, why not make more use of gold, this fiduciary asset par excellence? The official price of the yellow metal, in order to be credible, must not vary too greatly from the market price. Since Washington insists on an excessive discrepancy between the two prices, let us, the Europeans, decide to fix a realistic price for gold for our own transactions.”96 However, the rest of Europe did not support the French view. In June of 1972, the British decided to float the pound, a move that created even greater price discrepancy. The French complained and called the British move a political failure.97 On September 11, 1972, Paul Volcker, still undersecretary of the Treasury, testified before a subcommittee on international exchange of Congress’s Joint Economic Committee.98 He described the British decision in July to float the pound as disrupting the “period of calm” following “the exchange of rate equilibrium so arduously worked out” at the Smithsonian. He also described the interventions in world currency markets undertaken by the Treasury and the Federal Reserve as necessary to keep the value of the dollar in an appropriate relation to other currencies, and he informed the committee that such interventions would continue at U.S. discretion. Here is what he said about gold: With respect to gold, the United States has repeatedly expressed the view that the role of that metal in the international monetary system should and must continue to diminish. Such an evolution is, of course, fully consistent with the trend of monetary history over a period of many years. Governments around the world long ago reached the inevitable judgment that domestic monetary systems and policies could not safely be hostage to vagaries in gold demand and supply – the cost in terms of economic stability was simply too high. Internationally, gold 25 years ago accounted for about 70 percent of total national monetary reserves. By 1972, the ratio had declined to some 27 percent. 95 Richard Janssen, “Connally Suggests New Monetary Rules Discipline Nations with Chronic Surpluses,” The Wall Street Journal, March 20, 1972. 96 Ibid. 97 Roman Eisenstein, “France Has to Back Dollar,” The Guardian, 5 August 1972. 98 Statement of the Honorable Paul A. Volcker, Under Secretary of the Treasury for Monetary Affairs, Before the Subcommittee on International Exchange and Payments of the Joint Economic Committee, September 11, 1972. 25 There are irresistible geological, industrial, and economic facts behind these trends. The physical supply of gold is both limited and, in the Western World, virtually entirely under the control of one producing nation. … Gold is both an attractive and useful metal, but the residual supply is in no way related to the liquidity needs of the world community. … I suppose there are some who would argue that additional liquidity in a gold-based system can be provided by increasing from time to time the price at which gold is traded among monetary authorities. But surely such an approach would make a mockery of any presumed “discipline” from a gold centered monetary system – the virtue sometimes still attributed to the use of gold. A system relying on gold price increases to regulate liquidity would be both continuously destabilizing to the monetary system and capricious in whom it benefits and whom it hurts. Obviously referring to the French view, Volcker added, “I do not think it will be easy to resolve differences about what to do about the precise role of gold.” That was an understatement. The Smithsonian agreement continued to disintegrate. Rather than stabilize the dollar and produce a large U.S. surplus to cure adverse U.S. balance of international payments, the agreement was followed by a weak dollar, and similar problems as before. Early in 1973, the U.S. devalued the dollar to make U.S. products more competitive in world markets and to improve the U.S. balance of payments. This was followed by a dump of dollars into the market in a rush to exchange them for German marks and Japanese yen.99 The combination of high rates of inflation and the first oil crisis in the fall of 1973 made the fixed rates agreed to at the Smithsonian untenable. By late 1973, the U.S., Japan, and all the countries of the European treaty had decided to let their currencies float against the dollar. In the fall of 1975, the principal antagonists, the U.S. and France, reached agreement on a few sentences of amendments to the IMF Articles of Agreement to provide a formal legal basis for floating exchange rates, and in 1976 the IMF Articles were formally amended to reflect the new reality. Both the 1944 agreement of Bretton Woods and the one reached just a few years earlier at the Smithsonian were officially dead. 99 Farnsworth, “Europeans Re-Examine Goals.” 26 Conclusion The interment of gold as a monetary standard has not ended ongoing debates over its strengths and weaknesses. But despite the periodic calls for its renewal by some analysts and many politicians both in the U.S. and abroad, it is difficult to imagine gold’s resurrection as the foundation of international monetary arrangements. Floating rates allow nations to reduce their exposure to the risks of any one currency by diversifying their holdings of foreign currencies. Intermittent national interventions that affect the valuation of domestic currencies to serve domestic economic and political interests remain inevitable. The Maastricht Treaty of February 1992, which led to the adoption of the euro, has, to be sure, reduced the international power of the dollar, but it has also produced some serious economic dislocations in the Eurozone. Some analysts are now looking to the currencies of large emerging countries, such as China, to add stability to the system. But it seems that all we can be sure of – more than seven decades after Bretton Woods and nearly half a century since its demise – is that the stability of the international monetary system rests primarily with judgments of the world’s central bankers and of the international monetary institutions, especially the IMF. This state of affairs proved its mettle during the 2007-2010 financial crisis, but it hardly ensures confidence or monetary stability. The French failure in its efforts to return to a gold standard has not, so far at least, become a loss for everyone. But there is more of the story yet to unfold.