Gold Stock and the Balance of Payments

Report Outline
Drive to Reinforce Confidence in Dollar
Gold Reserve and U.S. Monetary Policy
Plans for Increasing Monetary Liquidity
Special Focus

Drive to Reinforce Confidence in Dollar

Confidence in the American dollar, at a low ebb a year ago, has been increasing steadily in recent months. President Kennedy and Treasury Department officials have stated firmly and repeatedly that the dollar will not be devalued, and their assurances have been reinforced by a substantial reduction of the deficit this country has been running in its international accounts. No gold left the country in the four weeks ended Oct. 10. However, the gold stock of the United States has declined by $822 million so far this year—an amount almost equal to the total of $877 million for the entire year 1961. To guard against renewal of the outflow of gold and further buttress the dollar, monetary and fiscal authorities are making all possible efforts to wipe out the balance of payments deficit without at the same time unleashing deflationary pressures that might bring on a new recession.

Indications of Increased Confidence in Dollar

The latest annual meeting of the governors of the International Monetary Fund and the International Bank for Reconstruction and Development (World Bank) afforded striking evidence of faith in the dollar. Per Jacobsson, managing director of I.M.F., had asserted on Sept. 11, six days before the meeting opened in Washington, that Americans “ought to have great confidence in the dollar and recognize it, as other countries do, as the main currency of the world.” He added: “I think Americans ought to begin to regard these outflows of gold with equanimity.”

Jacobsson and other I.M.F. officials noted that the dollar had remained stable despite last spring's stock market slump and steel price controversy. It was pointed out also that wage increases in Western Europe since 1960—25 per cent in West Germany, 19 per cent in France, and 9 per cent in Great Britain, as compared with only 5 per cent in the United States—had far exceeded productivity increases. This inflationary trend in Europe promises to make it easier for American exporters to compete in foreign markets and harder for European exporters to compete in United States markets, thus aiding American efforts to eliminate the payments deficit.