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Office Correspondence

Chairman Eccles


December 3,1947,

Ā« ,. ,


I shall be engaged in a meeting all morning with the Staff Group
on Foreign Interests, but will be available to discuss this matter with
you and Governor Szymczak whenever you have time.





Office Correspondence

Chairman Eccles

D a te

December 3,1947

Subject: Canadian gold subsidy

From Mr* Khapp

The National Advisory Cotineil will be asked to give further consideration this afternoon to the problem of the Canadian gold subsidy. Mr.
Overby, Mr. Southard, Mr* Ness, and myself met again to discuss this subject
yesterday afternoon (see my meBK>randum of December 1 for further background),
and we are proposing the following program of action:
(1) The immediate dispatch of a letter from the Department
of State to the Canadian Government expressing our view that the
gold subsidy in the form presently proposed is a violation of the
Articles of Agreement of the International Monetary Fund since it
is tantamount to an increase in the price of gold, and expressing
our opposition in principle to acy other type of subsidy to gold
production* (The Canadian Government is prefectly aware of our views
by now, and Mr. Rasminsky, the Canadian Director in the International
Fund, has returned to Ottawa to report to them the hostile view in
the Fund Board of Directors regarding the present form of the proposed gold subsidy. However, no communication has been received
from the Canadian Government in response to our discussions with
Mr. Clark, and the Canadian Parliament assembles on Friday.)
(2) The issuance of firm instructions to the U.S. Executive
Director in the International Fund to insist upon a public declaration by the Fund that the proposed Canadian gold subsidy in
its present form is contrary to the Fund's Irticles of Agreement.
(If Overby brings sufficient pressure to bear, it seems certain
that he can obtain a majority vote in favor of such declaration.)
(3) The issuance of a public statement by the U.S. Government,
immediately following the Fundfs statement, in which the United
States would express its strong disapproval of any form of artificial
stimulation of gold production and announce that countries which
engaged in such practices would be denied access to American supplies and equipment needed for their gold mining industries. Action would also be taken, and announced in the public statement,
requesting the International Fund to study and report upon the
question of artificial stimulants to gold production other than
premium prices for gold (or subsidies equivalent to premium prices).
(Mr. Overby has already explored the possibility of getting the
Fund to include in its public statement a condemnation of all forms
of artificial stimuli to gold production. However, this would
clearly go beyond the obligations of member countries under the

To: Chairman Iccles


Artides of Agreement, and there is no reasonable prospect of
his succeeding in this endeavor at the present time. In fact,
while it oay be desirable to have the Fund make a study of this
problem, I see no prospect of its coming out with any action
satisfactory to us* This is a clear case of a conflict of interest between the United States as the principal market for
the worldfs gold production and the various gold producing

We had a sharp debate yesterday on the question of whether the
United States should now announce (or threaten) refusal to purchase gold from
countries which indulged in artificial stimulation of gold production. There
is a faction in the Treasury Department which favors such a course, but the
rest of us reject it on the following grounds:
(1) It would almost certainly prove to be unenforceableā€¢
As a matter of fact, if we should try to boycott Canadian gold,
if and when they proceed with some kind of a subsidy plan, it
is likely that they would simply start selling it at premium
prices in the black markets around the world. This would be
a serious blow to our present policy of trying to dry up these
black markets, and before long we would find it quite impossible
to avoid purchasing Canadian gold through indirect channels.
(2) Even more serious would be the general shock to international confidence in gold if we should invoke this action.
This might well be interpreted as a first step by the United
States toward abandonment of its gold purchase policy. The
repercussions would be unpredictable, but one possible result
would be the dumping of foreign gold upon the United States
as long as the going was good11.