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DECEMBER 17, 1975

Printed for the use of the Joint Economic Committee



For sale by the Superintendent of Documents, U.S. Government Printing Office,
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(Created pursuant to sec. 5 (a ) of Public Law 304, 79th Cong.)
HUBERT H. HUMPHREY, Minnesota, Chairman
WRIGHT PATMAN, Texas, Vice Chairman
EDWARD M. KENNEDY, Massachusetts
Jo h n R. St a r k ,
S e n io r
J e r r y J. J a s i n o w
L o u g h l in



Staff E

Jo h n R. K

cH ugh

R obert
R alph





a m r in

Sc h l o s s t e in



aufm an

il l ia m





General Counsel

c o n o m is t s

A. Cox



A. F


Sarah Jackso n

L . D o u g l a s L ee

G eorge R . T y l er

L arry Y

G eorge

a r l ik

Courtn ay M . S later

R. B

il l ia m

c o n o m is t s


R ic h a r d


HENRY S. REUSS, Wisconsin
GILLIS W. LONG, Louisiana
MARGARET M. HECKLER, Massachusetts
Executive Director

in o r it y

Jr. (Counsel)

S u b c o m m it t e e


u speh

M . Ca t h e r in e M

I n t e r n a t io n a l E

il l e r

c o n o m ic s

HENRY S. REUSS, Wisconsin, Chairman

EDWARD M. KENNEDY, Massachusetts

D e ce m b e r 1 5 , 1 9 7 5 .

To the Members of the Joint Economic Committee:
T r a n s m i t t e d h e r e w i t h f o r t h e use o f th e m e m b e rs o f th e J o i n t E c o ­
n o m ic C o m m it t e e a n d o t h e r M e m b e r s o f C o n g r e s s is a r e p o r t o f th e
S u b c o m m itte e o n I n t e r n a t i o n a l E c o n o m ic s e n t it le d “ T h e P r o p o s e d
I M F A g re e m e n t on G o ld ” .
T h e v ie w s e x p re s s e d i n th is S u b c o m m itte e r e p o r t d o n o t n e c e s s a rily
re p re s e n t t h e v ie w s o f o t h e r m e m b e rs o f th e C o m m it te e w h o h a v e n o t
p a r t i c ip a t e d i n th e h e a r in g s o f th e S u b c o m m itte e o r in th e d r a f t i n g o f
th e r e p o r t .
S in c e re ly ,
H u b e rt H . H u m p h rey,

Chairman, Joint Economic Committee.

D ecem ber 1 2 , 19 75 .

H o n . H u b e rt H . H u m p h rey,

Chairman, Joint Economic Committee, Congress of the United States,
Was hing ton, I).C .
D e a r M r . C h a i r m a n : T r a n s m i t t e d h e r e w it h is a r e p o r t o f th e S u b ­
c o m m itte e o n I n t e r n a t i o n a l E c o n o m ic s e n t it le d “ T h e P r o p o s e d I M F
A g r e e m e n t o n G o l d . ” I t h a s b e e n a p p r o v e d u n a n im o u s ly b y th e m e m ­
b e rs o f th e s u b c o m m itte e . H o w e v e r , S e n a to r s R i b i c o f f a n d T a f t a n d
R e p r e s e n t a t iv e R o u s s e lo t d is s e n t f r o m R e c o m m e n d a t io n 5.
T h e s u b c o m m itte e w ashes to e x p re s s its a p p r e c ia t io n f o r th e v ie w s
it re c e iv e d f r o m th e p r i v a t e e x p e r ts w h o a p p e a r e d b e fo r e i t as w itne sse s
d u r i n g th e h e a r in g s p r e c e d in g t h is r e p o r t .
S in c e r e ly ,



R euss,

Chairman, Sub committee on International Economics.

(in )


Letters of transmittal______________________________ _______________________


I. Exchange rates_________________________________________________________
II. The gold agreement-------------------------------------------------------------------------------Recommendations:
1. Authorization to float_______________________________________________
2. Intervention ------------------------------------------------------------------------------------3. The schedule of IMF gold sales____________________________________
4. No management of gold price_____________________________________
5. The proposed sales of one-third of the IMF gold stock______________
6. Sales of the remaining portion of the IM F’s gold__________________
Supplementary views of Representative Rousselot------------------------------------Comments of Senators Ribicoff and Taft_________________________________


A p p e n d ix

Press communique of the Interim Committee of the Board of Governors
on the International Monetary System_________________________________
Rambouillet declaration pledges recovery without renewed inflation_____




On August 31, 1975, the Interim Committee of the International
Monetary Fund (IM F), which is charged with negotiating outstand­
ing issues of monetary reform, announced it had reached substantial
agreement on the distribution of a 32.5 percent increase in total quota
obligations and on future arrangements regarding gold. (The com­
munique issued by the Interim Committee appears as an appendix to
this report.) A third issue—whether or not the IMF should permit
members to choose freely between fixed and floating exchange rates—
continued to prevent full agreement on international monetary reform.
Discussion of this question was postponed until the next meeting of
the Interim Committee, scheduled for January, 1976.
On October 10, 1975, the Subcommittee on International Economics
conducted a hearing to obtain the opinions of a number of expert wit­
nesses on the various provisions of the gold agreement. Appearing
were Henry H. Fowler, of Goldman, Sachs and Company and former
Secretary of the Treasury, Jacques de Groote, Executive Director of
the International Monetary Fund representing Austria, Belgium,
Luxembourg, and Turkey, who appeared in his personal capacity, Pro­
fessor Fritz Machlup of New York University, Professor Ronald Mc­
Kinnon of Stanford University, and Frazar Wilde, Chairman Emer­
itus of Connecticut General Life Insurance Company. A letter dated
November 1, 1975, from Secretary of the Treasury William Simon,
presenting his views on the Interim Committee gold agreement is also
incorporated in the record of the hearings. This report focuses on the
Interim Committee’s August 31 agreement on IMF quotas and gold.
I. Exchange Rates
This Subcommittee, along with the Subcommittee on International
Trade, Investment and Monetary Policy of the House Committee on
Banking. Currency and Housing, has already outlined its views re­
garding fixed versus floating exchange rates in a report published in
August, 1975, and entitled “ Exchange Rate Policy and International
Monetary Reform.” We continue to adhere to all the recommendations
offered in that report.
The chief executives of six leading industrial countries reached an
understanding on economic issues at Rambouillet, France, on Novem­
ber 17, 1975. The communique they issued included the following
statement on international monetary stability and exchange rates:
With regard to monetary problems, we affirm our intention
to work for greater stability. This involves efforts to restore
greater stability in underlying economic and financial condi­
tions in the world economy. At the same time, our monetary
authorities will act to counter disorderly market conditions,
or erratic fluctuations, in exchange rates. We welcome the rap-



prochement, reached at the request of many other countries,
between the views of the U.S. and France on the need for
stability that the reform of the international monetary sys­
tem must promote. This rapprochement will facilitate agree­
ment through the IMF at the next session of the interim
committee in Jamaica on the outstanding issues of inter­
national monetary reform.
The two exchange rate recommendations from our August report
are herewith repeated:

Recommendation 1: Authorization To Float
Floating should require no IMF authorization. Any
amendment of the IMF Articles of Agreement should
treat the adoption of a fixed parity or the decision to
let the foreign exchange value of a nation’s currency be
determined by private supply and demand in exchange
markets as equally acceptable policy options. Each op­
tion should be accompanied by a set of agreed guidelines
designed to prevent Fund members from manipulating
exchange rates to export domestic economic problems.
Recommendation 2: Intervention
The United States monetary authorities should inter­
vene in exchange markets only to combat or to prevent
the emergence of disorderly conditions. Intervention
should not attempt to influence the trend of exchange
rate movements. Swap borrowings and loans entered into
between the Federal Reserve and foreign monetary au­
thorities should normally be liquidated, i.e., the position
fully reversed, within six months of the initial transac­
tion. Only as a result of the most extraordinary circum­
stances should swaps remain outstanding for more than
a year. U.S. monetary authorities should not accumulate
additional reserves in the form of foreign exchange.
Precisely what are “ erratic” fluctuations in exchange rates and
whether they result exclusively from “ disorderly market conditions”
remains to be defined. It appears, nevertheless, that any intervention
required to counter such fluctuations can be conducted within the
guidelines stipulated in Recommendation 2.
II. The Gold Agreement
The Interim Committee’s August 31,1975, agreement contains three
major provisions: first, the official price of gold should be abolished;
second, the obligation of IMF members to pay 25 percent of quota
subscriptions in gold and to use gold in certain other transactions with
the Fund will be eliminated; and third, one-sixth of the IM F’s gold
holdings will be sold in the market, the profits being used to benefit
developing countries, and another sixth will be restituted or sold to
the monetary authorities of member countries at the official price.

P r o f i t s f r o m sales w i l l be p r o p o r t i o n a l to th e d iffe r e n c e b e tw e e n th e
m a r k e t p ric e a n d th e o ffic ia l v a lu e o f g o l d , a p p r o x i m a t e l y $42 p e r t r o y
o u n c e . R e s t i t u t i o n w i l l p r e s u m a b ly o c c u r i n p r o p o r t i o n to m e m b e r s ’
q u o ta s a n d w i l l c o n s titu te a n e x c h a n g e o f F u n d g o l d f o r n a t io n a l c u r ­
re n c ie s a t th e o ffic ia l p r ic e . T h e a g r e e m e n t a ls o p r o p o s e d a d e le g a tio n
t o t h e F u n d o f e n a b lin g a u t h o r i t y p e r m i t t i n g i t t o d isp o se o f th e r e ­
m a i n i n g t w o - t h i r d s o f th e F u n d ’ s g o l d s to c k a c c o r d in g to th e w is h e s
o f m e m b e r s h o l d i n g 35 p e rc e n t o f th e t o t a l v o t i n g p o w e r in th e I M F .
In c l u d e d as p a r t o f th e c o m m u n iq u e w a s a n u n d e r s t a n d in g re a c h e d
b y th e G - 1 0 , i .e ., th e G r o u p o f T e n la r g e s t i n d u s t r i a l n a tio n s in th e
I M F , in te n d e d to h e lp im p le m e n t th e I n t e r i m C o m m it t e e a g re e m e n t.
T h e s e c o u n trie s c o m m it t e d th e m s e lv e s f o r a t w o - y e a r p e r io d to ta k e
“ n o a c tio n t o p e g th e p r ic e o f g o l d ” a n d n o t to in c re a s e th e t o t a l s to c k
o f g o ld i n th e h a n d s o f th e F u n d a n d t h e i r n a t i o n a l m o n e ta r y a u t h o r i ­
tie s . I n o t h e r w o r d s , c o lle c tiv e p u rc h a s e s b y th e c e n tr a l b a n k s o f th e
G r o u p o f T e n w o u ld n o t e xce e d t o t a l sales b y th e I M F .
I n n u m e r o u s r e p o r t s issu e d o v e r p a s t y e a r s , th e J o i n t E c o n o m i c
C o m m it t e e h a s u r g e d t h a t th e in t e r n a t i o n a l m o n e t a r y ro le o f g o ld be
p r o g r e s s iv e ly re d u c e d a n d t h a t S p e c ia l D r a w i n g R i g h t s ( S D R s ) , a
f i d u c i a r y asset is s u e d b y th e I n t e r n a t i o n a l M o n e t a r y F u n d , b ecom e th e
p r i m a r y re s e rve m e d iu m . P r o g r e s s t o w a r d t h is g o a l h a s been n e g l i g i ­
b le . A t th e e n d o f A u g u s t , 1 9 7 5 , t o t a l in t e r n a t i o n a l re se rve s h e ld b y
a ll m e m b e r c o u n trie s o f th e I M F w e re w o r t h th e e q u iv a le n t o f $ 2 2 7
b i l l i o n , o f t h is a m o u n t , g o ld ( v a l u e d a t th e o ffic ia l p ric e o f $42 p e r
o u n c e ) c o n s titu te d $42 b i l l i o n , S p e c ia l D r a w i n g R i g h t s $ 10 b i l l io n , r e ­
s e rve p o s itio n s i n th e F u n d 1 $ 13 b i l l i o n , a n d f o r e i g n e x c h a n g e $ 1 6 1
b i l l io n .
I n 1 9 7 1 a n d 1 9 7 2 , th e fo r e i g n e x c h a n g e c o m p o n e n t o f in te r n a tio n a l
re s e rv e s to c k s s o a re d as a co n se q ue n ce o f in t e r n a t i o n a l c a p ita l flo w s
e n g e n d e re d b y e x c h a n g e r a te m is a lig n m e n t s . T h e s h i f t t o flo a tin g e x ­
c h a n g e ra te s e lim in a t e d m o s t o f th e s p e c u la tiv e in t e r n a t io n a l c a p ita l
flo w s t h a t h a d p r o d u c e d th ese h u g e re s e rv e g a in s . B u t th e q u a d r u p l i n g
o f o il p ric e s in 1 9 7 3 ca used o il i m p o r t i n g n a tio n s t o b o r r o w fu n d s t o
m e e t th e in c re a s e d costs a n d i n it i a t e d a n o t h e r r o u n d o f la r g e fo r e i g n
e x c h a n g e a c c u m u la tio n s , t h is t im e b y th e g o v e r n m e n t s o f o il p r o d u c i n g
c o u n trie s .
A n t i c i p a t i n g a n d fe a r i n g a w o r l d - w i d e m o v e m e n t to raise th e o ffi­
cia l v a lu e o f g o ld . th e J o i n t E c o n o m i c C o m m it t e e i n its a n n u a l r e p o r t
p u b lis h e d in M a r c h , 1 9 7 4 , re c o m m e n d e d t h a t th e o ffic ia l p ric e o f g o ld
be a b o lis h e d . S u b s e q u e n tly , th e F r e n c h g o v e r n m e n t , in J a n u a r y , 1 9 7 5 ,
d e c id e d to r e v a lu e its g o ld re se rve s a c c o r d in g to a m a r k e t-r e la t e d p ric e .
T o d a t e , n o o t h e r m a j o r c o u n trie s h a v e f o l l o w e d th e F r e n c h le a d .
O n J u n e 1 2 ,1 9 7 5 . th e I M F I n t e r i m C o m m it te e issu e d a c o m m u n iq u e
s u m m a r i z i n g th e e x t e n t o f a g re e m e n t a t t h a t d a te o n th e f u t u r e m o n e ­
t a r y r o le o f g o l d . A m o n g th e p o in ts a g re e d to w e re a b o lit io n o f th e
o ffic ia l p ric e o f g o ld a n d a b r o g a t io n o f a ll o b lig a t io n s to use g o ld in
p a y m e n t s b e tw e e n th e F u n d a n d m e m b e r c o u n tr ie s . T h e c o m m u n iq u e
a lso fo r e s a w “ th e sa le o f a p o r t i o n o f th e F u n d ’ s g o l d a t th e a p p r o x i ­
m a te m a r k e t p ric e f o r t h e b e n e fit o f d e v e lo p in g m e m b e rs in g e n ­
e r a l . . . a n d th e sale o f a n o t h e r p o r t i o n to m e m b e r s a t th e p re s e n t
1 The amount which member countries are entitled to borrow automatically from the
Fund without being subject to any review.
62 901— 75-------2


official price” . In June the amounts of gold to be sold for the benefit of
developing countries and to be restituted were still at issue.
In reaction to that communique, this Subcommittee recommended
in its August report that “ sales of gold by the International Monetary
Fund should adhere to an agreed schedule for disposing of Fund gold
holdings”. The discussion following this recommendation said in part :
Linking the future monetary role of gold and financial
assistance to developing countries risks confusing two inde­
pendent issues, with counterproductive results. Tire Interim
Committee’s decisions to abolish the official price of gold and
to dispose of Fund gold holdings are entirely appropriate.
But the future international monetary role of gold should be
determined by the pace at which Fund members choose to
shift the reserve basis of the system towTard SDRs. I f profits
accrue from IMF gold sales, and if the member countries
agree to use these profits for the benefit of developing na­
tions, excellent! But the pace of IMF gold sales should not be
influenced by the financial needs of developing countries.
The August 31,1975, agreement is a compromise designed to accom­
modate conflicting views among both industrial and developing coun­
tries. By divesting the IMF of a portion of its gold stock, the agree­
ment seeks to begin the process of phasing gold out of the international
monetary system. By selling 25 million ounces of gold at market prices
and using the profits to benefit developing countries, it seeks to aid
the impoverished of the world. By selling an equivalent amount of gold
to IMF members at the official price and by calling these sales “ restitu­
tion” , it seeks to satisfy the desires of those IMF members that either
desire to retain an international monetary role for gold or want for
themselves the potential profits from resale of this gold in the market.
But like many compromises, this one runs the risk of failing to accom­
plish either of its major objectives—phasing out gold as a monetary
asset or aiding developing countries.
The 25 million troy ounces of gold that the IMF plans to sell is
equivalent to about 55 or 60 percent of the total amount of gold sup­
plied annually to the market. The gold market is extremely thin. I f
the IMF were to attempt to sell the full 25 million ounces in one year,
the price would collapse. Even the threat of IMF sales has pushed the
market price down about $20 per ounce to the current level near $140.
Thus, if significant profits for the benefit of developing countries are
to be derived from IMF gold sales, these sales must be spread over
several years. On the other hand, the longer the period over which
the disposal of IMF gold reserves is stretched, the longer gold will
retain a significant international monetary role.
How the market will react to IMF gold sales, and the amount of
profit derived from these sales are highly uncertain. In addition, how
much gold that the IMF sells might be purchased by central banks,
and the price at which these banks may value their gold reserves are
unclear. I f central banks were to purchase the full 25 million ounces, as
is permissible under the Group of Ten’s understanding, and if mone­
tary authorities were to value this gold at about three times the current


official price, the international monetary role of gold could be accentu­
ated rather than diminished. Because of these ambiguities about the
impact of the agreement, it should be clarified when the IM F’s
Interim Committee next convenes in January. The commitment of
IMF members to phase gold out of the international monetary system
should be strengthened. This objective should be the primary one and
take precedence over maximizing the profits from gold sales.

Recommendation 3: The Schedule of IMF Gold Sales
Sales of IMF gold should be executed according to
a predetermined schedule designed to begin phasing gold
out of the international monetary system. Sales should
not be increased or decreased, accelerated or delayed, in
an effort to maximize profits.
Whenever, now and in future years (see Recommendations 5 and 6
below), a portion of the IMF gold stock is selected for sale on the
market to benefit developing countries, the incremental amounts and
the schedule of sales should be announced in advance and adhered to.
The timing and size of incremental sales should not be manipulated
in an effort to maximize the profits derived from those sales or for any
other purpose. If a schedule is announced, individuals dealing in the
gold market will be able to take this knowledge into account. They will
be able to estimate to the best of their abilities the prices at which such
transactions are likefy to occur and to plan their own future purchases
or sales. Pacing IMF sales according to the level of prices in the gold
market would permit that market to determine the rate at which Fund
action to phase out gold as a reserve asset is executed. Such a procedure
could also introduce a de facto floor under the price of gold. Making
announcements of Fund gold sales at irregular intervals would be
likely to have a disruptive effect on the market and generate over it a
cloud of intense uncertainty. For these reasons the most satisfactory
procedure is to announce a series of sales extending for some time into
the future, say three to five years, and then to adhere to that schedule
irrespective of the developments that subsequently occur. Of course,
how the market responds to sale of the initial increment, whether 25
or 50 million ounces (see Recommendation 5), will have a major impact
on the timing and size of any subsequent series of sales that may be
contemplated (see Recommendation 6).
Recommendation 4: No Management of the Gold Price
The IMF Interim Committee’s decision to abolish the
official price of gold and the Group of Ten’s commitment
to take no action to peg the price of gold are both highly
commendable. The members of the IMF should also agree
not to undertake any organized effort either to sustain
the market price of gold through purchases or depress
it through sales.


The G-10 pledge to take “no action to peg the price of gold” is vague
and unnecessarily limited. To peg the price of the commodity is to hold
it fixed within narrow margins. Concerted efforts can be exerted to
smooth fluctuations in the price of a commodity or to maintain that
price within a broad range without necessarily pegging it. Organized
or concerted efforts by IMF members to smooth variations in the price
of gold or to keep it within a broad range should also be forsworn,
since such actions would tend to preserve artificially the monetary role
of gold. Perhaps, this was the intent of the G-10 understanding. If so,
there should be no problem clarifying its intent. If not, this pledge
against pegging is an empty device and should be amplified and

Recommendation 5: The Proposed Sales of One-Third of
the IMF Gold Stock 2
There should be no restitution of one-sixth of IMF gold
to Fund members, as proposed. Profits from all IMF gold
sales, whether one-third or one-sixth of the present stock,
should be used for the benefit of poor countries and should
be dispersed through a trust fund, preferably established
under the International Bank for Reconstruction and
The gold held by the International Monetary Fund has been paid
into that institution by member countries as one-quarter of their sub­
scriptions. The Fund’s Articles of Agreement stipulate that a quarter
of quotas should be paid in gold and also specify that various other
transactions between the Fund and member countries should be in gold.
According to the Articles, the only way a member can recover its
gold and currency subscription payments from the Fund is in the
event of withdrawal from that institution. Thus, abolishing the re­
quirement that certain payments be made in gold and selling a portion
of the Fund gold stock to members at the official price both require
amendment of the Articles.
The title to the gold now held by the Fund resides with the IMF
and not with the respective member countries. Not only do the Arti­
cles lack a provision for returning gold to the monetary authorities
of member countries, but also the plan outlined in the Interim Com­
mittee agreement is extremely inequitable. The 25 million ounces
of gold scheduled to be restituted will apparently be sold back to mem­
ber countries in proportion to their quotas and at the official price of
about $42 per troy ounce. If this gold can be resold in the market
at a profit of about $100 an ounce, the benefit to the United States
could be as large as $570 million, since this country has the biggest
quota. The potential gains to Great Britain might be $230 million, to
Germany $140 million, to France $130 million, and to Japan $100
2 See the comments of Senators Ribicoff and Taft and supplementary views of Repre­
sentative Rousselot.

By contrast, the poor would receive short shrift. The potential gains
to Malaysia would be $16 million,#Korea $7 million, Afghanistan $3
million, drought-striken Mauritania $1 million, Bangladesh $11 mil­
lion, Sri Lanka $8 million, Colombia, $13 million, and Honduras $2
million. Instead of this uneven distribution of benefits, all gold that is
disposed of by the IMF—whatever that amount may be—should be
used to benefit developing countries and the profits should be allocated
according to need.
Equally important as the inequity of selling 25 million ounces of
gold to the monetary authorities of member countries at the official
price, with the largest portions going to the wealthiest, restitution
would most likely enhance the monetary role of gold and reduce the
need for additional issues of SDRs. Gold held by the IMF is largely
immobile. Taking a portion of the IMF stock out of its coffers and re­
turning it to the monetary authorities of member states could increase
the use of gold as an instrument for settling debts among monetary
authorities. If monetary authorities valued their gold reserves at
market-related prices, the nominal worth of reserve stocks could also
increase substantially. The role of Special Drawing Rights would then
be eclipsed and future issues postponed.
The fundamental responsibility of the International Monetary Fund
is to foster and preserve the health of the international monetary sys­
tem. This function includes surveillance of member countries’ balanceof-payments policies and even domestic economic policies that affect
their external payments positions. The exercise of these duties obliges
the Fund occasionally to require countries to adopt measures of econo­
mic discipline that the officials of the member countries would rather
avoid. By contrast, in recent years the Fund has assumed a variety of
tasks that primarily ease the burdens of member countries. Examples
of these functions are the compensatory financing facility to aid na­
tions experiencing short falls in export receipts due to events beyond
their control and the facility to assist countries particularly hard-hit
by the increased cost of oil imports. The trust fund to benefit develop­
ing countries would have an even more explicit aid-giving purpose
and, in contrast to the provisions of the IMF Articles, would dis­
criminate among members regarding the interest rate charged on loans.
For this reason, the Fund cannot itself make low-interest loans to
developing countries from the profits derived from gold sales.
The establishment of such a trust fund is entirely praiseworthy; the
only question is whether it should be under the aegis of the Inter­
national Monetary Fund. Since a potential conflict exists between the
objectives of the trust fund and the regulatory responsibilities of the
IMF, this facility would more appropriately be housed under the
umbrella of the International Bank for Reconstruction and Develop­
ment (World Bank), the leading aid-giving organization. Moreover,
if this assistance is disbursed under the supervision of the World
Bank and its affiliates, the expenditures are likely to support existing
development programs and aid objectives.

Recommendation 6: Sales of the Remaining Portion of
the IMF’s Gold
The IMF should be granted enabling authority to sell,
with the approval of member nations holding 85 percent
of the total voting power, the remaining portion of the
Fund’s gold stock at times and in amounts that are con­
sistent with the desired evolution of the international
monetary system.
The reference to enabling authority in the Interim Committee’s Au­
gust 31 communique is vague. When an amendment to the IMF Articles
of Agreement is drafted to create such enabling authority, the lan­
guage of that amendment should permit IMF members to determine
the timing and amounts of the gold sales that will be held in the future
to further reduce the Fund gold stock. With such enabling authority,
additional gold sales will be possible without the formality of amend­
ing the Fund Articles again.


Governments should not intervene in the gold market. Market forces
should be permitted to determine the prices of both currencies and
commodities. Governments and individuals should be allowed to make
contracts involving gold, and no aspersions should be cast upon the
decisions of those who choose to trade in gold.
The most serious and persistent economic problem is inflation, which
in itself is responsible for a large measure of what is often referred to
as a separate problem—unemployment. Accordingly, my primary con­
cern regarding any new monetary system which may emerge from the
current series of negotiations is that it not become an engine of infla­
tion. Avoidance of inflation will require a considerable amount of dis­
cipline in the conduct of National and international monetary affairs
which has been lacking at crucial times in the past.
Concerning the specific recommendations of “ The Proposed IMF
Agreement on Gold,” the following views are given :
Recommendation No. 1 .—Floating exchange rates with agreed
“ guidelines” designed to prevent member countries from manipulating
designated “exchange rate guidelines” are desirable.
Recommendation No. 2 .—Limitations on intervention in exchange
markets to situations in which it is intended “only to combat or prevent
the emergence of disorderly conditions” raises the question as to who
will determine when, in light of such criterion, intervention might be
permitted. Similarly, the suggestion that under “the most extraordi­
nary circumstances should swaps remain outstanding for more than a
3^ear” raises the question as to what would constitute “extraordinary
circumstances.” The limited power to intervene should not be abused.
Recommendation No. 3.—According to this recommendation, the
IMF should publish a plan for the sale of its gold holdings and adhere
to the plan, irrespective of any change or variations in the gold mar­
ket. Admittedly, the rationale is that if the schedule of gold sales is
known in advance, the market can accommodate such sales with mini­
mum disruption. However, there are other questions to consider. Since
the gold sales would be carried out over a number of vears. there is no
way to predict exactly what the nature of the gold market is going to
be over the extended length of time. Even the best schedule cannot
forecast severe market disruptions that could conceivably erupt. In our
view, the recommendation should make allowances for such possibili­
ties and read that IMF sales be carried out according to the pre-determined schedule, but that the IMF should have the option of departing
from the schedule when circumstances so warrant.
Recommendation No. 4-—Most Members endorse the concept that
the IMF should refrain from managing the price of gold.


Recommendation No. 5 .—Allocation of profits from IMF sale of
gold to developing countries is not desirable. It is my view that profits
from the sale of IMF gold be allocated according to the participation
of the countries in the fund and that any assistance provided to devel­
oping countries come directly from each contributing country involved.
In the case of the United States this means that the question of as­
sistance to developing countries would be determined by normal Con­
gressional authorization procedures rather than through the obscure
and indirect method of the sale of IMF gold.
Recommendation No. 6 .—Since as a practical matter, the United
States retains a virtual veto power over the sale of IMF gold stock,
this recommendation is consistent with protection of the interest of the
United States and the sale of IMF gold.

We agree basically with the report of the Subcommittee on In­
ternational Economics of the Joint Economic Committee entitled
“ The Proposed IMF Agreement On Gold.”
In particular, we support recommendations 1 through 4, and 6:
That nations be free to float their currencies without IMF approval;
that the U.S. monetary authorities not intervene in currency markets
except to smooth over disorderly conditions; that IMF gold sales pro­
ceed according to a rigid, well-publicized schedule; that neither the
IMF nor its members seek to influence the price of gold; and that the
IMF be free to sell all its gold over time, as the members see fit.
However, we do not agree with the fifth recommendation, which
states that all profits from IMF gold sales shall be used for the benefit
of third world nations. This is in lieu of an IMF proposal that profits
from the sales of % of IMF gold should be returned to the subscribing
nations, who deposited the gold in the first place, with only the profits
from further sales to go to developing nations. Even this more moder­
ate aid program is off base.
We see no reason to confuse the two distinct questions, “What should
be the ro le of gold in the international monetary system?” And “ H oa v
much foreign aid should we give over the next few years?” Either the
gold belongs to the IMF, or it belongs to the member states, which
contributed the gold in proportion to their quotas. In either case, the
profits should be distributed to the member nations in proportion to
their quotas.
The IMF is not designed to be a relief agency, nor an investment
agency. I f the nations owning stock in the International Bank for Re­
construction and Development wish to increase their subscriptions, or
to increase their bilateral aid, out of IMF gold sale profits or with any
other funds, then well and good. However, such a decision should be
taken openly, by each nation, unencumbered by an artificial link be­
tween the question of aid and the role of gold in international



[International Monetary Fund Press Release No. 75/40, Washington, D.C., Aug. 31, 1975]
P r ess C o m m u n iq u e

I n t e r im C o m m it t e e of
I n t e r n a t io n a l M o n e t a r y

of t h e

B o ar d



G overnors


1. The Interim Committee of the Board of Governors of the International
Monetary Fund held its fourth meeting in Washington, D.C. on August 31, 1975
under the chairmanship of Mr. John N. Turner, Minister of Finance of Canada.
Mr. H. Johannes Witteveen, Managing Director of the International Monetary
Fund, participated in the meeting. The following observers attended during
the Commitee’s discussions : Mr. Henri Konan Bédié, Chairman, Bank-Fund
Development Committee, Mr. Gamani Corea, Secretary General UNCTAD, Mr.
Wilhelm Haferkamp, Vice President, EC Commission, Mr. René Larre, General
Manager, BIS. Mr. Emile van Lennep, Secretary General, OECD, Mr. F. Leutwiler, President, National Bank of Switzerland, Mr. Robert S. McNamara, Presi­
dent, IBRD, and Mr. Gardner Patterson, Deputy General, GxlTT.
2. The Committee had a discussion of the world economic situation and out­
look, and expressed its concern about the current severe problems of recession
and unemployment, balance of payments disequilibria, and inflation. The Com­
mittee felt that industrial countries which have slack domestic demand condi­
tions and relatively strong balance of payments positions, and which have made
progress in reducing inflation, should lead in the promotion of a satisfactory
rate of expansion in world trade and activity. The Committee believed that,
on the basis of such a coordinated policy approach, a resumption of economic
growth might be expected for the industrial world during the latter part of 1975
or the first half of 1976. Although rates of price increase in industrial countries
have generally been subsiding, the Committee noted the disturbing fact that
economic recovery in the industrial world will get underway with rates of
inflation still unacceptably high.
Throughout the Committee’s discussion, particular concern was expressed for
the many primary producing countries, and especially the developing countries,
whose current account deficits have been greatly enlarged by the increase in
import costs and the downturn in global demand. Resumption of growth in
world trade is urgently neded to alleviate the plight of such countries. Moreover,
the Committee feared that, unless they were able to obtain adequate financing,
many primary producing countries might have difficulty in fending off pressures
to restrain imports, either through deflationary demand measures that would
undermine their development efforts or through resort to trade restictions. In
view of these dangers, the Committee expressed the hope that the Executive
Board would consider various steps that might be taken by the Fund to meet
the present urgent need for a greater volume of financing.
3. The Committee noted the improvements in the 1975 Oil Facility introduced
as a result of the July review by the Executive Directors and endorsed the
efforts now in progress to raise the amount of resources that the Fund would be
able to borrow for the financing of purchases under that facility to the total
of SDR 5 billion that wTas asrreed at the meeting of the Committee in January
1975. The Committe also endorsed the intention of the Executive Directors to
hnve another review of the 1975 Oil Facility at an early date, one purpose of
whioh would be to determine what action needs to be taken in the best interests
of the international community, and also to undertake at about the same time
a bronder examination of the Fund’s policies on the use of its resources.
4. The Committee welcomed the establishment of a Subsidy Account to assist
those members that have been most seriously affected by the current situation


to meet the cost of using the Oil Facility and commended those members that
have already stated their willingnes to make contributions to that account. At
the same time, the Committee expressed concern at the fact that the total
amount of the contributions by members that have already stated their willing­
ness to contribute is substantially short of the total support that was contem­
plated and urged those members that have not yet pledged their support to
make every effort to do so as soon as possible.
5. The Committee noted the progress made by the Executive Directors on the
Sixth General Review of quotas within the framework of the understandings
reached at previous meetings of the Committee. The Committee noted the agree­
ment on increases in the quotas of almost all members. In particular, the
increases for the industrial countries and for the major oil exporting members
have been agreed. The differences that remain among the other members are
few and are expected to be resolved soon. The Committee asked the Executive
Directors to prepare and submit to the Board of Governors a resolution on
increases in the quotas of individual members. The Committee also asked the
Executive Directors to complete their work on the mode of payment of the
increases in quotas on the basis of the understandings already reached in the
Commitee so that appropriate recommendations can be submitted to the Board
of Governors at the same time as the resolution on increases in quotas. The
Committee reiterated its view that all of the Fund’s holdings of currency
should be usable in its transactions. The Committee agreed that on the question
of majorities for the adoption of decisions of the Fund on important matters,
a majority of eighty-five percent should be required under the amended Articles
for those decisions that can now be taken by an eighty percent majority. It
also agreed that amendments of the Articles should become effective when
accepted by three-fifths of the members having eighty-five percent of the total
voting power.
6. The Committee discussed the problem of gold, including the disposition of the
gold holding of the Fund. The elements of the consensus reached are described
in this paragraph.
At the meeting of the Interim Committee on January 16, 1975, it was decided
to move “toward a complete set of agreed amendments on gold, including the
abolition of the official price and freedom for national monetary authorities to
enter into gold transactions under certain specific arrangements, outside the
Articles of the Fund, entered into between national monetary authorities in
order to ensure that the role of gold in the international monetary system would
be gradually reduced.”
To implement this general undertaking, provision should be made fo r :
1. Abolition of an official price for gold.
2. Elimination of the obligation to use gold in transactions with the Fund, and
elimination of the Fund’s authority to accept gold in transactions unless the
Fund so decides by an 85 per cent majority. This understanding would be without
prejudice to the study of a Gold Substitution Account.
3. Sale of % of the Fund’s gold (25 million ounces) for the benefit of develop­
ing countries without resulting in a reduction of other resources for their benefit,
and restitution of % of the Fund’s gold to members. The proportion of any profits
or surplus value of the gold sold for the benefit of developing countries that would
correspond to the share of quotas of these countries wTould be transferred directly
to each developing country in proportion to its quota. The rest of the Fund’s gold
would be subject to provisions in an amendment of the Articles that would create
enabling powers exercisable by an 85 per cent majority of the total voting power.
The Committee noted that, in order to give effect to the understandings arrived
at in this Committee, the countries in the Group of Ten have agreed to observe
during the period referred to below the following arrangements, which could be
subscribed to by any other member country of the Fund that wishes to do so.
Other members might adhere to these arrangements, and on such occasions the
necessary modifications in them would be made:
1. That there be no action to peg the price of gold.
2. That the total stock of gold now in the hands of the Fund and the monetary
authorities of the Group of Ten will not be increased.
3. That the parties to these arrangements agree that they will respect any
further condition governing gold trading that may be agreed to by their central
bank representatives at regular meetings.

4. That each party to these arrangements will report semi-annually to the
Fund and to the BIS the total amount of gold that has been bought or sold.
5. That each party agree that these arrangements will be reviewed by the
participants at the end of two years and then continued, modified or terminated.
Any party to these arrangements may terminate adherence to them after the
initial two-year period.
6. Many members from developing countries expressed concern that the pro­
posed arrangements for gold would give rise to a highly arbitrary distribution of
new liquidity, with the bulk of gains accruing to developed countries. This wottld
greatly reduce the chances of further allocations of SDRs, thereby detracting
from the agreed objective of making the SDR the principal reserve asset and
phasing out the monetary role of gold. This aspect should be studied, and meas­
ures explored to avoid these distortions.
7. The Committee noted the work done so far by the Executive Directors on
the subject of the establishment of a trust fund and the possible sources of its
financing in response to the request of the Development Committee. It was agreed
to ask the Executive Directors to pursue their work with a view to completing
it at an early date, taking into account the understandings reached in the Com­
mittee with regard to the use of profits from the sale of part of the Fund’s gold
for the benefit of developing countries, without neglecting the consideration of
other possible sources of financing.
8. It was agreed that acceptable solutions must be found on the subject of the
exchange rate system under the amended Articles, so that these agreed solutions
can be combined with those on quotas and gold. The Executive Directors were
requested to continue their work in order to arrive at acceptable solutions and to
prepare for submission to the Board of Governors, after examination by the
Committee at its next meeting, appropriate proposals for amendment of the Fund’s
Articles on all aspects that have been under consideration.
9. The Committee noted that the Executive Directors are in the process of con­
ducting a review of the Fund’s facility on compensatory financing with a view to
improving a number of its aspects. It was agreed to urge the Executive Directors
to complete their wTork on this subject as soon as possible, taking into account the
various proposals that have been made by members of the Committee.

R a m b o u i l l e t D e c l a r a t io n P led g es R e c o v e r y W

it h o u t

R e n e w e d I n f l a t io n

Following is the text of the joint declaration issued November 17 at the close
of the six-power economic summit:
The heads of state and government of France, the Federal Republic of Ger­
many, Italy, Japan, the United Kingdom of Great Britain and Northern Ireland,
and the United States of America met in the Chateau de Rambouillet on No­
vember 15-17,1975 and agreed to declare as follows:
1. In these three days we held a searching and productive exchange of views
on the world economic situation, on economic problems common to our countries,
on their human, social, and political implications, and on plans for resolving
2. We came together because of shared beliefs and shared responsibilities. We
are each responsible for the government of an open, democratic society, dedicated
to individual liberty and social advancement. Our success will strengthen, in­
deed is essential to, democratic societies everywhere. W e are each responsible
for assuring the prosperity of a major industrial economy. The growth and
stability of our economies will help the entire industrial world and developing
countries to prosper.
3. To assure in a world of growing interdependence the success of the ob­
jectives set out in this Declaration, we intend to play our own full part and
strengthen our efforts for closer international cooperation and constructive
dialogue among all countries, transcending differences in stages of economic de­
velopment, degrees of resource endowment, and political and social systems.
4. The industrial democracies are determined to overcome high unemployment,
continuing inflation and serious energy problems. The purpose of our meeting
was to review our progress, identify more clearly the problems that we must
overcome in the future and to set a course that we will follow in the period

5. The most urgent task is to assure the recovery of our economies and to re­
duce the waste of human resources involved in unemployment. In consolidating
the recovery it is essential to avoid unleashing additional inflationary forces
which would threaten its success. The objective must be growth that is steady
and lasting. In this way, consumer and business confidence will be restored.
6. We are confident that our present policies are compatible and complementary
and that recovery is under way. Nevertheless, we recognize the need for vigil­
ance and adaptability in our policies. We will not allow the recovery to falter.
We will not accept another outburst of inflation.
7. We also concentrated on the need for new efforts in the areas of world trade,
monetary matters, and raw materials, including energy.
8. As domestic recovery and economic expansion proceed, we must seek to
restore growth in the volume of world trade. Growth and price stability will be
fostered by maintenance of an open trading system.
In a period where pressures are developing for a return to protectionism, it is
essential for the main trading nations to confirm their commitment to the prin­
ciples of the Organization for Economic Cooperation and Development pledge
and to avoid resorting to measures by which they could try to solve their prob­
lems at the expense of others, with damaging consequences in the economic,
social, and political fields.
There is a responsibility on all countries, especially those with strong balance
of payments positions and those with current deficits to pursue policies which
will permit the expansion of world trade to their mutual advantage.
9. We believe that the Multilateral Trade Negotiations should be accelerated.
In accordance with the principles laid down in the Tokyo Declaration, they should
aim at substantial tariff cuts, even eliminating tariffs in some areas, at signifi­
cantly expanding agricultural trade, and at reducing nontariff measures. They
should aim at achieving the maximum possible level of trade liberalization there­
from. We propose as our goal completion of the negotiations in 1977.
10. We look to an orderly and fruitful increase in our economic relations with
socialist countries as an important element in progress in detente, and in world
economic growth. We will also intensify our efforts to achieve a prompt con­
clusion of the negotiations now under way concerning export credits.
11. With regard to monetary problems, we affirm our intention to work for
greater stability. This involves efforts to restore greater stability in underlying
economic and financial conditions in the world economy.
At the same time, our monetary authorities will act to counter disorderly
market conditions or erratic fluctuations in exchange rates. We welcome the
rapprochement, reached at the request of many other countries between the views
of the United States and France on the need for stability that the reform of the
international monetary system must promote. This rapprochement will facilitate
agreement though the IMF at the next session of the Interim Committee in
Jamaica on the outstanding issues of international monetary reform.
12. A cooperative relationship and improved understanding between the devel­
oping nations and the industrial world is fundamental to the prosperity of each.
Sustained growth in our economies is necessary to growth in developing countries,
and their growth contributes significantly to health in our own economies.
The present large deficits in the current accounts of the developing countries
represent a critical problem for them and also for the rest of the world. This must
be dealt writh in a number of complementary ways. Recent proposals in several
international meetings have already improved the atmosphere of the discussion
between developed and developing countries. But early practical action is needed
to assist the developing countries.
Accordingly, we will play our part, through the IMF and other appropriate
international forums, in making urgent improvements in international arrange­
ments for the stabilization of the export earnings of developing countries and in
measures to assist them in financing their deficits. In this context, priority should
be given to the poorest developing countries.
13. World economic growths is clearly linked to the increasing availability
of energy sources. We are determined to secure for our economies the energy
sources needed for their growth. Our common interests require that we continue
to cooperate in order to reduce our dependence on imported energy through con­
servation and the development of alternative sources. Through these measures
as wTell as international cooperation between product and consumer countries,
responding to the long-term interest of both, we shall spare no effort in order to

ensure more balanced conditions and a harmonious and steady development in
the world energy market.
14. We welcome the convening of the Conference on International Economic
Cooperation scheduled for December 16. We will conduct this dialogue in a
positive spirit to assure that the interests of all concerned are protected and
advanced. We believe that industrialized and developing countries alike have
a critical stake in the future success of the world economy and in the cooperative
political relationships on which it must be based.
15. W e intend to intensify our cooperation on all these problems in the frame­
work of existing institutions as well as in all the relevant international