Courtesy Reuters

Gold and the Dollar

The persistent deficit in the United States' balance of international payments and the continuing loss of gold have led to increasing discussion of national policies relating to gold and the dollar. While the issues involved are quite technical and complex, they are important to the future of the nation and the world. Broader understanding of the forces impinging on the nation's balance of payments is essential if the United States is to react properly to the changes in its role in the world economy.

The authors start from the firm belief that the present gold-exchange standard is the most efficient, equitable and powerful international monetary system in the world's history. It has performed remarkably well under conditions of unprecedented world growth, and has contributed significantly to that growth. The objective must be to preserve the present system, while working to improve it by gradually supplementing it with some new source of international liquidity. The key to this proposition is that the official dollar price of gold must remain unchanged regardless of the pressures that might be put on the United States to revalue gold. To achieve this, it is essential to recognize that our responsibility for fiscal and monetary stability extends beyond our borders. Not only are non- inflationary policies desirable for domestic reasons; they are necessary to maintain the purchasing power of the large liquid dollar assets held by foreigners. Foreign dollar holders must feel confident that dollars constitute the best available store of internationally acceptable purchasing power. It should continue to be a major objective of U.S. policy to achieve a viable balance in international payments, but this objective should be pursued through responsible monetary and fiscal policies rather than through new controls over international capital movements, foreign exchange transactions or tourism.

These propositions deviate little from the conventional wisdom. Yet because of the changing position of the United States in the world economy, they have far-reaching implications. There is a reluctance to recognize that the situation has

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