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RL ) IN RECORDS SECT J A N 2 11974 Transcript of Press Conference held b y CHAIRMAN A R T H U R F . BURNS at 7:00 p . m . November 13, 19 73 in the Board Room Federal Reserve Building 20th Street and Constitution A v e n u e , N . W . Washington, D.C. Chairman B u r n s : Good e v e n i n g , g e n t l e m e n . It is a fine hour to get you here b u t it is nice to see you at the B o a r d . a n n o u n c e m e n t to m a k e . I have an It is very brief--just a single s e n t e n c e . I would like it distributed to e v e r y b o d y . How many sheets of paper are here? You h a v e the communique issued at the March 1968 m e e t i n g . A n d do you have A r t i c l e 4 of the IMF A r t i c l e s of Agreement? A. Yes, we have it, sir. Chairman B u r n s : Why don't you distribute that. W e l l , I think you have now the raw materials that you need and I simply w a n t to make a few brief explanatory remarks and answer q u e s t i o n s . This communique states that the March 1968 agreement is now formally terminated. That's the essence of i t . Now let me explain first of all 2 - w h y this communique is confined to seven c o u n t r i e s , central banks of seven c o u n t r i e s . The reason is very s i m p l e . These were the seven countries that entered into the March 1968 a g r e e m e n t . Since that agreement w a s m a d e in W a s h i n g t o n and since we arc now ending it w i t h a decent b u r i a l , the decent b u r i a l is taking place in W a s h i n g t o n . N o w , if you w i l l take a glance at the communique issued in 1968, turning to the second c o l u m n , you'll see it reads -- just about 8 or 10 lines down -- "the Governors believe that h e n c e f o r t h officially held gold should be used only to effect transfers among m o n e t a r y authorities and t h e r e f o r e , they decided no longer to supply gold (that is to sell g o l d ) to the London gold m a r k e t or any other gold m a r k e t . " Do you remember the circumstances of the time? Hi ere was great uncertainty about the balance of payments of the United States and also Great B r i t a i n . A gold pool had b e e n established by a number of the central b a n k s , and gold was flowing out from it to the private m a r k e t in m a s s i v e v o l u m e . The central bankers felt that their reserves were being depleted; so they created a two-tier s y s t e m , and hencefore, according to their d e c i s i o n , there w e r e to be two m a r k e t s for gold. First,there w o u l d be an official m a r k e t . Central banks would trade witli one another at a fixed price, a price of $35 per o u n c e . S e c o n d , there would be a free m a r k e t , and there, private citizens and b u s i n e s s firms would trade in gold the way they trade in - 3 - any non-ferrous m e t a l or established in March any c o m m o d i t y . So this two-tier m a r k e t w a s 1968, and the purpose w a s to lock up g o l d . And central bankers a g r e e d , not only not to sell to the private m a r k e t , b u t also not to buy from i t . W e l l , so m u c h for that a g r e e m e n t . the q u e s t i o n , why terminate it? A n d if you ask that question of central b a n k e r s , I think y o u w o u l d get d i f f e r e n t r e a s o n s . one reason that I think you w o u l d probably get banker, Now you m i g h t ask N o w there is from every central and that reason is that events h a v e passed by the March 1968 agreement. It no longer has any relevance to the actual w o r l d . of c o u r s e , this is t r u e . And, There h a s n ' t b e e n any official m a r k e t for g o l d , practically s p e a k i n g , since A u g u s t 15, 1971, w h e n convertibility of the dollar came to an e n d . N o w , let m e say a word about the m e a n i n g of the termination of the March 1968 a g r e e m e n t . The different governments and different central b a n k e r s , may and undoubtedly w i l l , interpret this termination d i f f e r e n t l y . On this s u b j e c t , I am going to speak for the United States G o v e r n m e n t , and for the United States Government a l o n e . And I w i l l under no circumstances m a k e any comment about any other governm e n t or any other central b a n k . In so far as you m a y be interested in knowing the thinking of this or that government or this or that central b a n k , y o u ' 1 1 have to go to the s o u r c e . proceed. I think that's the only fair way to It isn't that I w a n t to m a k e any secret of i t , but I think everyone ought to speak for h i m s e l f on this i s s u e . - 4 - Now as far as the United States G o v e r n m e n t is c o n c e r n e d , our interpretation is very s i m p l e . W e w i l l henceforth be guided b y A r t i c l e 4 , Section 2 , of the Articles of A g r e e m e n t of the I M F . A r t i c l e 4 , Section 2, is b e f o r e y o u . N o w the language of that A r t i c l e is a little m o r e technical than w e need for the present p u r p o s e . refers to margins above and b e l o w p a r . It The m a r g i n s arc not relevant to anything that w e are going to discuss t o d a y . W h a t the A r t i c l e says is simply that no m e m b e r shall buy gold at a price above par v a l u e . Well, the par value at the present time is $ 4 2 . 2 2 , so that as far as w e ' r e concerned we are not going to buy gold at the m a r k e t p r i c e . As you k n o w , the m a r k e t price is in the neighborhood of about $ 1 0 0 , and has been in recent d a y s . Not so long a g o , it was a little above $ 1 2 0 . So w e ' r e not going to buy g o l d . Then A r t i c l e 4 , Section 2,states that no m e m b e r shall sell gold at a price b e l o w par v a l u e . at a price above par v a l u e . the neighborhood of $ 1 0 0 . Section 2 . W e l l , a m e m b e r is free to sell gold Par v a l u e is $42.22; the m a r k e t price is in W e ' r e going to operate under Article 4 , W e consider that A r t i c l e to remain in e f f e c t . w e consider ourselves free to sell g o l d . Therefore W e do not consider ourselves free to buy g o l d , unless or until the price of gold falls to or below $42.22. That is our interpretation. So stripped of all details about m a r g i n s , e t c . , to r e p e a t , since gold is now selling well above its par v a l u e , w e now consider ourselves free to sell gold to the m a r k e t . We think that is the m e a n i n g of the action taken b y the central b a n k e r s . That's our interpretation; w e hope others interpret it the same w a y , b u t it's up to others to interpret this action as they see fit. corollary is And a that w e shall refrain from buying g o l d , certainly u n d e r present circumstances, being b o u n d , as we consider ourselves to b e , b y A r t i c l e 4 , Section 2 . To say the same tiling once a g a i n , the practical u p s h o t of all this i s , that from the standpoint of the A m e r i c a n Governm e n t , the U . S . m a y h e n c e f o r t h sell gold from its stockpile but the U . S . G o v e r n m e n t w i l l not buy gold either from other central banks or from the m a r k e t , in present circumstances and in foreseeable circumstances. That is the practical m e a n i n g of the termination of the March 1968 a g r e e m e n t . N o w let m e m a k e finally a few consents that are interpretive c o m m e n t s , rather than factual. F i r s t , let me repeat once a g a i n , that I'm giving you the A m e r i c a n interpretation of w h a t this termination m e a n s . We w i l l govern our conduct according to the inter- pretation that I've given y o u . One or m o r e other central banks m a y interpret the termination d i f f e r e n t l y . Point two- W h e t h e r , w h e n , in what a m o u n t s , and in w h a t ways gold is to be sold b y the U . S . -- all this w i l l be resolved at a later t i m e . I have nothing whatever to say on this and I shall have nothing w h a t e v e r to say on that subject t o d a y . - 6 - Point t h r e e . 'Hie termination of the March 1968 a g r e e m e n t , w h i c h I'm now a n n o u n c i n g , does not of itself change or affect in any way the present law which prohibits A m e r i c a n citizens from o w n i n g , b u y i n g or selling g o l d . N o w , f i n a l l y , and m o s t important of a l l , the of the March termination 1968 a g r e e m e n t is not intended b y the U . S . or b y any of the other central b a n k s , and here I can speak for them and d o , this termination is not intended to prejudice any ultimate decisions international m o n e t a r y r e f o r m . concerning In other w o r d s , the present: decision-- the decision that I have just: announced — is entirely w i t h o u t prejudice as to any final decisions concerning the role of gold in the international monetary system. Now that's the end of m y announcement and my elucidation of it, and now I'll take a few q u e s t i o n s . essential q u e s t i o n s . Let them be I can't h o n e s t l y say I'm tired, but I do have people in m y office w a i t i n g , 1 do have a most impatient w i f e , and I h a v e some of my colleagues at the Board who arc eager to go h o m e , and I think the rest of you are as w e l l . Governor Daane was with m e , would you like to add anything to w h a t I've said? Governor Daane: No, Mr. Chairman. essential Chairman B u r n s : points. M r . B r y a n t , you're my m e n t o r , but you w e r e not with m e . Have I m i s l e d Mr. Bryant: I think you have covered all the the group so far? I have nothing to a d d , M r . C h a i r m a n . Chairman B u r n s : You s e e , he has nothing to a d d , but lie h a s n ' t answered my question. Question A l l r i g h t , let's turn to your q u e s t i o n s . My question w a s , M r . C h a i r m a n , with this agreement or the suspension of the a g r e e m e n t , are signatory governm e n t s free if they so wish to deal among in gold at m a r k e t related Chairman Burns: themselves priccs. The agreement says nothing about t h a t . I am confident that none of the major central banks w i l l buy gold in the foreseeable future. Question From the m a r k e t or from each other? Chairman Burns: B o t h , either from the m a r k e t or from each o t h e r . .Question A t prices above the official price? Chairman Burns: I am confident that will not take p l a c e . ^ H o w e v e r , I cannot say categorically that it w i l l not take p l a c e , nor can I say that there is an explicit agreement that it should not take p l a c e . expressing a p r a c t i c a l , b u t also I have reason to think, an informed Question I am judgment. But would this create a problem for the Common Market snake w h o have already agreed to revalue the special drawing rights as w e l l as their positions in the IMF and the odd m a n out in that situation w a s , of c o u r s e , gold since they are committed to settle debts in proportion to these r e s e r v e s . Chairman Burns: But that is not really taking p l a c e . among central b a n k s . Gold is not passing And since they are not s e l l i n g , they are also not b u y i n g . Question Could you explain the timing of this decision and the specific reason why it was done now rather than months ago or months from now? - 8 - Chairman Burns: W e l l , that's not e a s y . explanation. period. I don't think there is any special This has been talked about for a long A lot of the central bankers w e r e i n v o l v e d . It seemed to some of us--it certainly seemed to m e - - t h a t w e ought to stop talking about i t . Either do this--terminate the agreement--or stop talking about i t . 'You k n o w , there comes a time, at least w h e n you've reached my a g e , w h e n it serves no purpose to keep t a l k i n g . wheels. Young m e n can afford to spin their As far as I'm c o n c e r n e d , the time comes either to do something or if you can't,you turn to something e l s e . forward Now that is a straight explanation. Question M r . C h a i r m a n , w h y w e r e n ' t you able to reach a common agreement among the central bankers as to the m e a n i n g of the d i s s o l u t i o n . Chairman Burns: W e l l , there was no intention that I could discover on anybody's part to buy g o l d . tion caused legal d i f f i c u l t i e s . Section 2 . The American interpreta- W e wanted to be guided by Article 4 , So then, Switzerland is not a m e m b e r of the IMF. How can S w i t z e r l a n d , you see, undertake a commitment under the articles? there's the legal d i f f i c u l t y . So Some central b a n k e r s , w h i l e they have no intention to buy gold under any c i r c u m s t a n c e s , arc just not s u r e . Some don't care tc sell, you k n o w , but why enter into this agreement not to buy? They like to be free. may involve them i n . They arc not quite sure w h a t it But I think that the best answer to your question is not the answer that I'm giving y o u . .The b e s t answer to that question you can get by talking to other central b a n k e r s . they t h i n k . I'm telling you w h a t I t h i n k . Let them tell you w h a t For a m o m e n t I was over- stepping the b o u n d a r y that I set for m y s e l f . Question W e l l , w a s it the h o p e of the central b a n k e r s that this d e c i s i o n w o u l d reduce the d i f f e r e n t i a l b e t w e e n the free m a r k e t price and official priced Chairman Burns: W e l l , this is a speculative m a t t e r . I h a v e views on that subject but I'm not going to speculate on that tonight. H o w e v e r , I would not be surprised if each of you does some speculating. By s p e c u l a t i n g , I m e a n thinking about the s u b j e c t . me only say t h i s . Let It does g i v e , I think, the governments of the world a certain f l e x i b i l i t y , which I think is of some i m p o r t a n c e , particularly at a time of floating exchange r a t e s . Question W e r e each of the countries that agreed to terminate a w a r e of the American Chairman B u r n s : Yes, they arc aware of the A m e r i c a n Oh y e s , fully a w a r e . talking to you now and giving i t . Question interpretation? interpretation. A w a r e of the fact that I'm Of c o u r s e , they a r e . W h a t is the position of the French Government w h i c h is not m e n t i o n e d . . . - 10 - Chairman B u r n s : X w i l l n o t explain the position of the French Governm e n t or the position of any other g o v e r n m e n t except my own. Question M r . C h a i r m a n , w i t h o u t talking about any particular g o v e r n m e n t s , w h a t other possible i n t e r p r e t a t i o n is there to the agreement? Chairman B u r n s : W e l l , I think that a few imaginative m e n , you s e e , they read this one sentence and then they can go on and say: " W e l l , w h a t does this imply?" I've tried to deal w i t h that by going to the central issue,as I see it,in m y very last s t a t e m e n t , w h e r e I emphasized that the termination of this a g r e e m e n t does not prejudice in any way the shape of international m o n e t a r y Question I'm not c l e a r , M r . C h a i r m a n . form. Is anybody else m a k i n g th is announcernen t simu11aneou s1y ? Chairman Burns: I am m a k i n g this a n n o u n c e m e n t . k n o w l e d g e , I alone a m m a k i n g i t . To the best of m y H o w e v e r , I would be surprised if in the natural course of events o t h e r central bankers did not hold press conferences with their journalists t o m o r r o w . To- day I'm simply m a k i n g this a n n o u n c e m e n t out of W a s h i n g t o n . Governor Daane: If you r e c a l l , the earlier communique was announced b y former Chairman !Iartin--it came out of this same Board Room.
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