World Monetary Reform

Report Outline
Attack on the Dollar in World Markets
Gold Standard Vs. Gold Exchange Standard
Basic Reforms in Monetary Arrangements

Attack on the Dollar in World Markets

Since the end of World War II, the United States has served as banker to the world by virtue of the unquestioned primacy of the dollar in international monetary exchanges. The dollar is still the strongest currency, but recent events show that it no longer is unassailable. Emboldened by a chronic deficit in the U.S. balance of payments, French President Charles de Gaulle has mounted an offensive of sorts against the dollar and the prevailing gold exchange standard. He seeks, in essence, return to a gold standard that would use the metal almost exclusively—instead of dollars and pounds sterling plus gold—as a medium for settling international accounts.

De Gaulle's challenge, spearheaded by conversion of French-held dollars into gold, has been poorly received by most of the major trading nations. Yet it has forced a long overdue assessment of existing monetary arrangements, as well as of measures aimed to stem the drain of American gold stocks. A week after de Gaulle on Feb. 4 called for a return to the gold standard, President Johnson sent a special message to Congress proposing a variety of measures to help solve this country's balance of payments problem. The President already had been forced by the gold leakage to ask Congress to repeal statutory requirements for gold backing of deposits in Federal Reserve banks.

These events emphasized the need to establish new mechanisms to strengthen the free world's monetary machinery. Reform is needed, first, to ease the strain on the dollar and the pound as reserve currencies and, second, to prepare for the time when there will not be a sufficient flow of reserve currencies abroad—“international liquidity” —to finance the steadily growing volume of world trade. A step toward solving the latter problem was taken on Feb. 26 when the International Monetary Fund announced a general increase in member quotas of about $5 billion, or 25 per cent. This expansion of the fund's ability to extend credit to member countries was voted over French opposition.