Charles de Gaulle on the Gold Exchange Standard, Economic Independence
From "C'était de Gaulle"
On inflation in the early 1960s, and converting dollars into gold
At the Council of Ministers on July 11, 1962, Giscard: “It is not good for the Bank of France to show too high an amount of foreign currency reserves. In its reserves, there is an increasing proportion of dollars, which poses a problem for the future. Therefore, we are repaying half of our external debt to Canada. Besides the sanitizing effect, this is a significant source of savings.”
“The Marshall Plan included some repayable loans. It is in our interest to proceed with the repayment of all these loans without delay. This repayment will be announced in the form of an exchange of letters between my counterpart Dillon, the American Secretary of the Treasury, and myself.”
Pompidou's facial expression, which Giscard cannot see, suggests that he is highly annoyed to see the minister taking credit for this achievement. The moment the communication ends, Pompidou curtly adds: “This is not only proof of the continued vitality of the French economy, but it is exemplary for international cooperation.”
It is made clear that the economy, just like international politics, is not the exclusive domain of the Ministry of Finance or the Ministry of Foreign Affairs. Since all important matters are inter-ministerial, everything that matters goes through Matignon: everyone take note.
The General acts as if he has not noticed this underlying tension: “We must continue to sanitize by converting our reserves into gold. We can therefore announce (he says, turning to me) that the Council of Ministers has authorized the Minister of Finance to proceed with the early repayment of our external debt.”
Visibly very satisfied, he concludes: “It’s pretty impressive.”
[…]
At the Council of Ministers on August 22, 1962, Giscard: “Our economy continues to expand beyond the Plan's projections. This is a particularly favorable result given that the Western economy is showing signs of fatigue.”
CDG: “Watch out for inflation! The rise in prices is a fact.”
Pompidou: “There is inflation in all full-employment economies. When purchasing power increases, wages are higher, and consequently, the cost of production rises. The important thing is to keep pace with other Western economies. The depreciation of the franc is not alarming, as long as it does not go faster than that of the mark and the dollar.”
(This is a dignified translation of Baumgartner's famous saying: “We must not commit more follies than others.”)
CDG: “I fear that this depreciation is going faster than in Germany, Italy, and England.”
Pompidou: “But in those countries, there is a recession!”
CDG: “Our psychology requires us to rigorously ensure stability. However, we have deviated from this, without real reasons, except for certain interests that are driving up prices.”
Pompidou: “We must not exceed a level that would be unbearable.”
CDG (sharply): “We must not reach it!”
Pompidou: “But that's not the case! The mass of consumers tends to say that the cost of living rises when meat, potatoes, and wine go up. But that is only one aspect of the situation. We do not have true inflation.”
Pisani: “The percentage of agricultural products in the cost of living keeps decreasing. On the other hand, one can never overstate the harmfulness of intermediaries! We will not be able to overcome this without vigorous measures.”
As we leave the Council, Pompidou, smirking, tells me: “The General is getting worked up because Mrs. de Gaulle told him, ‘Charles, prices are rising!’ The General concluded that he had to take matters into his own hands.”
In the Salon Doré, after the Council, the General showed me that he was not at all reassured by the optimism of Giscard and Pompidou, and that Pisani had best aligned with his thinking: “It is not enough to let things happen. You have to make things happen! You have to organize things! If you let things go, the unscrupulous intermediaries take their cut. We end up with inflated prices. ‘Laissez-faire, laissez-passer’ has never solved anything! You have to have will.”
At the Council of Ministers on December 19, 1962, Giscard: “We have a strong surplus of foreign currency. We had counted on 800 million dollars for the current year and we have already collected 1.2 billion. We are the only important creditor country in the world. The humiliating discount on our notes in foreign markets, which we experienced until 1958, is truly over. The banks that applied high fees, that's finished. Our notes circulating abroad are starting to be overvalued.”
Pompidou shared this optimism but wrapped it in caution: “Our balance of payments has seen a spectacular recovery since 1958. We can reduce the debt service accordingly. But it is dangerous to say, or to let it be said, that ‘the coffers are full.’ Once all our debts are repaid, we will have one billion dollars left, which is not excessive.”
In the Salon Doré, after the Council, the General reveals to me his thoughts on the dollar and gold:
“As long as the Americans claim that the dollar and gold are the same thing, we have to take them at their word. We will exchange our dollars for gold. But I am sure that one day, they will end this myth; the dollar will cease to be convertible into gold. Then it will become clear that the Americans want to replace the gold standard with the dollar standard. It will be seen that they want to extend their hegemony over the entire world. The veil will fall from the eyes of Europeans. The law of the strongest will impose itself brutally. It depends on us, the Europeans, to ensure that the Americans are not the strongest. But for that, there must be Europeans, and they must be determined not to surrender. Which is not obvious.”
[…]
Matignon, August 27, 1963.
End of vacation. Bustle and hustle. The Prime Minister's team is agitated. The General thundered. He complained that the excessive rise in prices and wages persists. He demanded an austerity plan and an action program. Pompidou affectionately laments: “Every time he returns from a long stay in Colombey, the General is rejuvenated. He hardens his positions. Over the days, at the Élysée, he is drawn towards compromise. But when he has broken away from the government for some time, from the Parisian milieu, from the political class, he returns to his original ideas.”
Salon doré, August 28, 1963.
The General summoned me on the eve of the Council: “We must prepare public opinion for some realities. Stabilizing prices and wages is a policy worthy of a government. Inflation is letting things slide, it's drifting aimlessly. We will pursue an active policy against rising prices; a policy of austerity. The government is required to acknowledge that the growth in wages and prices exceeds what is reasonable. Therefore, more stringent measures must be taken.”
Matignon, same day.
Pompidou seeks to appease. De Gaulle wants to dramatize: he believes that trust is disappearing and that the franc is threatened. But in action, the two men converge. After repeating the instructions given to me by the General, Pompidou urges me in the same direction: “The unions will try to sabotage the austerity plan. We must tell them and tell the socialists: ‘You are villains! You want inflation!’ Our game will be to embarrass them.”
However, at the end of the Council on Thursday, August 29, 1963, the General simply said: “The decisions will be made next week. There's no need to make a drama out of it. Inflation is a natural consequence of the situation of expansion and progress we find ourselves in. But a vigorous clarification must be made to prevent a slide. That's what will be done.”
Following the Council meeting on September 4, 1963, where nothing was said on the subject, I asked the General: “Are you concerned that the rise in prices may jeopardize France's role in the world?”
CDG: “Of course! Everything is interconnected. How can our political independence be assured if we do not ensure our economic independence? We must strengthen economic stability, as it was already done through the measures of late 1958, which allowed us to experience the growth and resurgence of prestige that we have known.”
“One cannot grow, develop, reform without occasionally needing to clarify things. Adjustments are necessary."
(He emphasizes the word.)
"It has been a long time since we made adjustments.”
[…]
At the Council meeting on Thursday, September 12, 1963, Giscard presents what will soon be known as the “stabilization plan.”
Giscard: “There is an inflationary trend. We must undertake an operation for stable prices, otherwise, within a year, there would be a sudden halt in exports and the certainty of devaluation. We need to stop the rise, manage the current evolution, preserve expansion while cleaning it up.”
He lists the measures he proposes: for industrial production, establish a regime of controlled freedom; lower customs duties; postpone increases in public tariffs and rents; stabilize food prices.
He ends with a sort of challenge: “If there were weaknesses in the execution of this plan, those who took the initiative would not be fit to ensure its support.”
This is a way of saying:
I claim the initiative of this plan.
I offer my resignation in advance, in case it does not succeed.
The General remains silent, but he seems to darken. I'm not sure he likes this kind of challenge launched almost publicly, especially since this statement will surely be repeated. Especially since in his eyes, the initiator of this plan is none other than himself.
Several ministers spontaneously speak up. The General grows impatient with the disjointed remarks made by one or the other. He has no intention of engaging in a round-table discussion where each minister would inevitably sing their personal lament. He brings us back to the essential point: “Under the Weimar Republic, the German merchant who sold a shoe could no longer, with the price of the shoe, buy a nail to re-sole it. That's what will threaten us in the long run if we do nothing.”
Pompidou recounts his campaign of confidential consultations: “The CNPF is without enthusiasm. Union leaders are struck by the seriousness of our measures; they scratch their heads; they are inclined to abstain. Also, good impression from the UNR and independent republicans, as well as provincial newspapers. Farmers, on the other hand, will make serious attempts to counteract our action. Total discretion was ensured during these discussions.”
With this setting in place, it's up to the General to conclude.
CDG: “What is happening was bound to happen. We are in full expansion, under conditions that surprise even ourselves. We are not used to this. Never before has a major Western country experienced such growth.”
“There is a source of inflation in all the countries of the Common Market, a psychology and a practice of ease in credits, spending, consumption, prices, and so on. In all areas, I insist that we do not limit ourselves to fractional measures. A comprehensive plan was needed. I approve it, apart from one or two details.”
“This whole thing must succeed, unless all the French were to sabotage it. But I believe there will be enough latent goodwill. What is proposed is important, but nothing terrible or excessive. In the presentation of this plan, let’s not exaggerate the rigor.”
“For revenue, we must extend income tax to executives. I see no inconvenience in that. There is no reason why the privileged situation of executives should not be offset by some sacrifices.”
“We also need to save on international personnel! Just for the European Parliamentary Assembly alone, there are 450 officials! It's the same for the UN, NATO, EURATOM! We must make our voice heard to reduce this waste.”
(The General turns to Couve.)
“It's scandalous! And they are exempt from taxes!”
“In this effort, there is solidarity within the government. I welcome this. I commend the ministers for resigning themselves to it. All are bound by solidarity. This is indeed the essential point compared to the previous regime.”
When Rome has spoken, everyone falls silent. After a pause, he continues:
“Well, today the battle begins. This afternoon, the Prime Minister, the Minister of Finance, and the Minister of Information will hold a joint press conference at Matignon.”
As for me, first I hear of it. Indeed, I will only be able to play the role of a plant in a pot next to the two main players. He turns to me: “Naturally, you won't say a word about this chapter just now.”
After another silence, he concludes: “The reins had to be taken back. I wanted it done. And it is done.”
The General emerges as a war leader. He has the gift of instilling the passion for combat. We are mobilized to fight Evil in all its forms — the margins of small traders, the cunning of peasants, the laxity of administrations, the cowardice of bosses, the proliferation of international civil servants, the cynicism of the Anglo-Saxons, the arrogance of the dollar — and, to top it all off, the psychology of ease that originates in prosperity and leads to inflation.
On the encroachment of American business interests into France
Salon doré, February 27, 1963.
CDG: “American imperialism spares no domain. It takes all forms, but the most insidious is that of the dollar.”
“The United States is incapable of having a balanced budget. They allow themselves to have enormous debts. Since the dollar is the reference currency everywhere, they can make others bear the effects of their mismanagement. They export their inflation all over the world. It's unacceptable. It must not go on like this.”
AP: “It must not, or it cannot?”
CDG: “It can very well go on! Everyone lies down. It will last… until we put a stop to it. Fortunately, we prevented the English from entering the Common Market. Otherwise, American investments in England would have multiplied. It would have been the gateway for American capital invading Europe. And too bad if our economy fell under American control.”
It's curious that the General launches into an economic and financial critique that is not familiar to him. It's true that it doesn't take him long to absorb a new discipline. In 1946, between his departure from power and the Bayeux speech, he absorbed numerous books on constitutional law in a few weeks and built a Constitution for our country according to his heart. It is ours today. Now, seventeen years older, he assimilates the techniques of global finance and external economic relations. It is true that Rueff must have been involved, followed by the advice of Burin and the clarifications of Lévêque. This is confirmed to me by the latter two in the afternoon.
[…]
Salon doré, April 30, 1963.
CDG: “The Americans are engaged in a process of taking control over all economic, financial, military, and political circuits in the world. It is an invasion unfolding like the course of a river. Even if the Americans wanted to oppose it, they could not. Besides, there is no risk that they would want to. Who builds a dam? It’s not the river. It’s the people who have an interest in protecting themselves from the flood. No one has the courage. Therefore, it is our duty. You will see, others will eventually follow our example if we set it with luster.”
He corrects himself: “With luster, but without arrogance. We must preserve friendship.”
AP: “As long as you are here, this policy can be followed: containing the American push, but without causing anger. However, your successor, whoever it is, will not have the capacity.”
CDG: “That is why, here as elsewhere, we must create the irreversible. The irreversible, for currencies, would be the gold standard. We are theoretically there, but practically we are turning our backs on it. The dollar has replaced gold. If we returned to the gold standard, currencies would be on track. That would mean that every time we have dollars, we convert them to gold, and everyone does the same. Political pressures could no longer manipulate currencies, even if governments are subjected to electoral or social pressures. The monetary authorities would have the means to prevent deviations.”
(This is pure Rueff, but concentrated and crystalline.)
“As long as I am around, I will force the government to fight against deficit and inflation, therefore to maintain the franc. When I am no longer here, you will see, ease will take its course. But the franc could hold if it were tied to gold like other currencies; that would force governments to be reasonable, the American government and all others like it.”
“The popular election of the President is not for me, but so that after me, the State and the country have a head. Likewise, it is necessary to create a situation such that political and monetary authorities are required to assume their responsibilities.”
[…]
At the same Council meeting on July 10, 1963, Giscard announces: “We are ready to repay all our external debts ahead of schedule. We hold a net surplus of 600 million dollars.”
CDG (gleefully): “What a difference! To think that after four years, we are capable of repaying all the debts of the Fourth Republic, which was burdened with them!”
Giscard: “Our gesture should be more colorful.” (He must be thinking of one of those ways he has a knack for, to color things that others see in gray)
Couve: “Should we wait for after Kennedy’s speech to announce it?”
CDG (quickly): “Do we have an interest in letting it be believed that we are repaying because Kennedy is giving a speech?”
After the Council, he tells me: “It's extraordinary, this Quai d'Orsay, it always tends to subordinate itself to foreign powers! We have always said that we would repay our debts when we had the means. We must do it, without waiting for speeches from one or the other. We don't need others to dictate our decisions to us or give us the opportunity to announce them! We have become mature and independent, haven't we!”
The General refrains from blaming Couve in front of me, whom he likes, but rather the Quai d'Orsay: a way of warning me. He denounces the collective tendency of an anonymous body.
AP: “A campaign is developing in American newspapers: France is said to be putting pressure on the dollar.”
He gets up and walks me out: “Don't worry about these campaigns. It's still extraordinary that we are accused of putting the dollar in difficulty! That's an accusation that couldn't have been made a few years ago!”
He breaks into a big laugh; a laugh of happiness.
[…]
Council of Ministers, Tuesday, February 18, 1964.
The General, suspicious, turns to Giscard: “Bull, is that really a French company, with a name like that?”
Giscard (infallible): “Bull was a Norwegian engineer who sold his patent to a French company. This company came to Crédit National for a loan of 45 million. In a firm that makes machines to know account balances down to the penny at any time, a desperate financial situation had arisen without anyone noticing.”
“General Electric proposes to bring in fresh money in exchange for a 20% stake in the capital. We have decided not to authorize this equity participation. We will create a French solution. Not without difficulty. Neighboring companies, jealous of their prerogatives, do not see the importance of the issue. The new group will bring in 70 million and hold two-thirds of the shares, with the former shareholders retaining only one-third. State aid will take the form of awarding contracts.”
Pompidou: “The financial and technical capacities of the large American companies are such that there are hardly any French, or even European, companies in the aeronautics, electronics, computing, or automotive sectors that can withstand their power, whether through absorption or purchase, if the governments do not intervene. Family businesses, unable to keep pace, do not keep up with technological advancements and turn a blind eye to the widening gap.”
“We must therefore save this company while keeping it private. If we nationalized it, it would limp along on the state's support. Only Europe will form a sufficient market. We should not imagine being able to stand up to the American giants with a small domestic market.”
CDG: “All this is very concerning. It was unfortunate that Bull was threatened. It’s a leading French company, and is not bad at all in its technical field.”
(The General’s faith in French genius is touching.)
“If General Electric entered the capital, it would be like the wolf in the sheepfold. But if we ally with a European partner, we must not fall under their control. It would just be another way to fall under the Americans’ control.”
Pompidou passes me a note: “Not a word about Bull. We didn’t talk about it.”
[…]
Council of November 18, 1964.
Giscard and Pompidou present to the Council a draft law on plural voting. The aim is to protect French companies from foreign interference by granting multiple voting rights to shares that have remained attached to the same company for ten years.
CDG (visibly pleased): “This is a big move. How do you think this will go over in the Assembly?”
Pompidou: “It will pass without difficulty.”
After the Council, the General comments on this provision to me: “You can say that this measure will prevent American capital from coming in and violently tipping the balance of power in a French company. You know, without economic independence, there is no independence at all.”
A year later, at the Council meeting on October 20, 1965, the matter resurfaces during a presentation by Maurice-Bokanowski.
Bokanowski: “Germany, where businesses are more consolidated, continues to modernize its equipment at an accelerated pace, and the means of our two countries are diverging more and more. In our country, consolidations are very difficult; they pose insurmountable personnel problems.”
CDG: “We must arm ourselves to encourage, and if necessary, to compel our industry to consolidate. The general trend pushes in that direction, but I do not believe it is sufficient.”
“We are also not armed to fight against American invasion. Given the enormity of America, we can only hold out if we are equipped to fight. I urge you to consider this very seriously. It is crucial. How will we prevent ourselves from being overwhelmed by a behemoth like General Motors or IBM?”
“The Americans export their inflation everywhere, to our detriment. They absolutely want to invest abroad, and it costs them almost nothing. We pay them for them to buy us out!”
Pompidou: “The Treaty of Rome prohibits us from discriminating between companies established in the Common Market. However, considering the very significant foreign investments in Holland, Belgium, and Italy, we do not know how to prevent these companies from then spreading to our country.”
“Is it in France's interest to allow Ford to establish itself in Italy, or rather in France in order to employ French workers? In any case, investments will happen, and we cannot do anything about it.”
Pompidou, less than three years ago, echoed the General's diatribe against the invasion of American capital. He has become much more nuanced.
While the General still sees foreign investment in France as a defeat for France, his Prime Minister sees it as a source of activity. The former remains suspicious. The latter, on this point, seems to have more serene and perhaps more accurate views.
On the Gold Exchange Standard
Salon Doré, December 23, 1964.
The General informs me that he plans to hold a press conference next February.
AP: “What topics do you plan to address?”
CDG: “In particular, the international monetary issue.”
(Thus, he will have waited a year and a half before “shaking things up.”)
AP: “By then, the sterling might be devalued?”
CDG: “Oh! The British will manage to muddle through until then, and even beyond. The American Treasury has given them enough dollars for that. But things are going very badly. The pound is at its breaking point, and so are the British. They might, like weaklings, try a disguised devaluation first, you know, in the manner of Félix Gaillard. They'll do 10%, 15%, disguised as import levies and export tax cuts. And then, it won't be enough.”
AP: “If the dollar follows the sterling, we would have to do the same ourselves…”
CDG: “I don't know yet. It will depend on the conditions. The British have four billion dollars in reserve. We only have one billion three hundred million dollars in greenbacks. We've converted all the rest, four billion dollars, into gold. Obviously, if all foreign dollar assets were to be converted into gold, it would drain the American gold reserves dry, demonstrating that the dollar is no longer the reserve currency it claims to be. However, if the dollar is devalued, our prices would immediately become too expensive compared to American prices. Then, it would become difficult for our exports.”
[…]
AP: “Do you think the Labour government can succeed in sorting out their finances?”
CDG: “No. It's an operation that won't succeed. To succeed in an operation like that, you need a mood, you need authority, you need capability like we had in '58. Back then, we were able to recover. But the English are not in that situation. First, they don't have a real majority. Then, they're led by noodles, starting with the Labour Party. And then, they are in the pocket of America. Consequently, they are screwed from the start.”
“They will gobble up the billion dollars that the International Monetary Fund is going to give them. And after that one, they will ask for another. It's possible the Americans will pull strings to get them out of the hole and give them another billion. They'll spend that too. And then one fine day… It will further increase American control over the English. The English are completely in the hands of the Americans. We'll see it with the Multilateral Force.”
AP: “Do you think they'll participate?”
CDG: “The Americans have them by the throat. The Americans will tell them: ‘Here it is, take it or leave it...’ It's the Americans who control the International Monetary Fund. If the Americans don't want the pound to be saved, well then! It won’t be saved. It's the policy of Nassau that extends to everything else. The English are turning their back on Europe.”
[…]
Salon Doré, February 3, 1965.
AP: “Will you announce anything important tomorrow in your press conference on the international monetary system?”
CDG: “I will say that the Gold Exchange Standard has become obsolete.”
AP: “Is that just wishful thinking?”
CDG: “It is not a wish! It is what needs to be done. I will indicate that the Gold Exchange Standard no longer rests on the same foundations as before and that, consequently, a change is necessary.”
AP: “We can't change it all by ourselves?”
CDG: “The fact that we condemn it justifies on its own our refusal to accept dollars in place of gold. Others will follow our example. It is enough for us to repeat it long enough for the Gold Exchange Standard to eventually collapse. But it would be better if it were deliberately abolished through negotiation.”
AP: “The Americans, and incidentally the British, will take this as an act of aggression.”
CDG: “We no longer consider the dollar as gold, since we now systematically exchange our dollars for gold... A lot of global enterprises are being expropriated in favor of the Americans, with capital they obtain through their inflation... They will react, but it doesn't matter much.”
AP: “It is said that France would refuse to participate in the next increase in International Monetary Fund contributions.”
CDG: “Precisely! We already have a tremendous amount of international contributions. All that to support a pound that ultimately won't be saved, and a dollar that is beginning to falter. Enough is enough! We are not in favor of increasing the quotas. They have already been increased! We are not rich enough to ruin ourselves.”
AP: “This is going to give us a few turbulent months.”
CDG: “The Americans can go ahead and do what they need to do to straighten out their balance of payments.”
[…]
AP: “What you said in your press conference about the gold standard did not go over well in the Anglo-Saxon press and the French press...”
CDG: “It's the same thing!”
AP: “But it was well received by public opinion, perhaps out of patriotism and because people trust gold, not the dollar.”
CDG: “Exactly. Deep down, the French people favor gold because they know, almost instinctively, that the era of gold has always coincided with economic stability.”
[…]
AP: "What will this lead to?"
CDG: "To the collapse of the pound and, sooner or later, the dollar, which will cease to be convertible into gold."
AP: "But we cannot wish for the collapse of the pound and the dollar!"
CDG: "Bah! Why fear it?"
(He is thinking of the collapse as a reserve currency, whereas I was thinking of "collapse" in terms of devaluation, which would not be favorable for us.)
AP: "We are still in solidarity, aren't we?"
CDG: "The Americans and the British have managed to artificially maintain their supremacy. As long as they were able to exchange their currency for gold and had favorable balances of payments, it did not inconvenience people. Today, this situation has reversed, their balances of payments are unfavorable, and they are losing gold.
“For the Americans to maintain the Gold Exchange Standard, as they are supposed to, their balance of payments would need to be balanced. But they are incapable of that. So, the dollar will decouple from gold sooner or later, despite all the pressures.”
“Restoring balance is a terrible operation. It would require political strength they don't have. Father Johnson doesn't have it. He cannot do that. Just as he cannot make peace with Asia.”
AP: “Don't you think that before returning to the pure gold standard, we will have to transition to a reserve currency other than the dollar, perhaps a basket of currencies?”
CDG: “We mustn't be fooled! The Americans and their followers would still try to keep the dollar as the main reserve currency, because it would be the strongest currency in the basket!”
[…]
Council of September 1, 1965
Giscard: “The U.S. Secretary of the Treasury, Fowler, came to Paris. He assures that the United States has recognized the disturbances caused by the continuous imbalances in their balance of payments and considers its restoration a priority objective. But they argue that their financial deficit is a global deficit. Fowler mentions the possibility of a basket of currencies. He adopts your theme of international monetary reform but without giving it any practical content.”
CDG: “The Americans see themselves as the policemen of the monetary world. Fowler said on the radio that the International Monetary Fund would be the appropriate framework to address the issue. In reality, it’s to give the impression of action, but they don’t want to do anything.”
After the Council, I discuss this approach with the General:
CDG: “Fowler’s visit achieved nothing and was never intended to achieve anything. It was just a first contact, unavoidable, on a topic that I brought to the agenda. Nothing that changes the respective positions.”
AP: “Could the franc and the mark become reserve currencies?”
CDG: “Reserve currencies, we have enough of them already! We’re not going to invent another one! There’s gold. The rest is nonsense, it’s meant to fool us.”
AP: “Bit by bit, the Americans acknowledge that the current system is not satisfactory.”
CDG: “For them, it’s not satisfactory at all anymore, since it results in them losing their gold!”
AP: “Are we going to continue converting our dollars into gold?”
CDG: “Of course! There’s no reason to stop. The Dutch and the Swiss are doing the same. Then others will follow. That’s why the dollar will eventually decouple.”
AP: “Nevertheless, the Americans have somewhat restored their balance of payments.”
CDG: “They restored it for a month; it’s little, after years of carelessness. They are in full inflation. So, they print dollars, they export them, suckers take them as if they were gold; it’s very convenient for the Americans. How do you expect them to give up exporting capital? They would have to stop creating it!”
On the currency crisis of 1967-68
In the fall of 1967, the dollar crisis erupted. But the General had already warned us during the Council meeting on October 6, 1966.
CDG: “The devaluation of the dollar is inevitable. The Americans will not escape it, due to the persistent deficit in their balance of payments. Sooner or later, they will have to end the convertibility of the dollar into gold. This hypocrisy will come to an end.”
Council meeting of January 4, 1968.
The devaluation of the pound has demonstrated to everyone the fragility of an international monetary system that relies solely on the dollar, which does not respect the rules that its responsibility as a reserve currency should impose on it, its “convertibility.”
Debré: “The deficit in the American balance of payments is getting worse. Congress demands a program to defend the dollar, but does not approve the fiscal measures proposed by Johnson to defend it. The Americans are instituting covert exchange controls. They will press for special drawing rights. We will suffer the consequences of their deflation, after having endured those of their inflation.”
Pompidou: “By taking these measures, they acknowledge their faults. It is their system that floods us with dollars. As a result, we will have to reanimate the economy this year.”
CDG: “The Americans have taken measures, but they are insufficient. There will be shocks, against which we must guard ourselves. All this reveals the inadequacy of the international monetary system. Great Britain and the United States are not taking the necessary steps given their global responsibilities. We must coordinate with the Federal Republic; there is Franco-German solidarity in this circumstance, and we must maintain and demonstrate it. As far as we are concerned, we will have to take internal measures to stimulate growth. We must work to accelerate economic activity.”
Council meeting of March 20, 1968.
The monetary crisis is in full swing.
Debré: “There is a flight from the dollar. Capital holders are turning to gold, to European currencies, and making massive purchases. Only political pressure from the United States prevents Japan, Germany, Italy from selling their dollars. In June 1967, the movements became so significant that the utmost secrecy was maintained about what was happening. But the devaluation of the pound revealed everything.”
“As a result, the United States, with the support of central banks, practically eliminated the convertibility of the dollar into gold, while maintaining it in theory. Appearances are saved, but the link between gold and the dollar is no longer established. The gold pool of the seven major central banks has been dissolved, and there is no longer an official gold market.”
“What to do? France's position was defined in 1965 by General de Gaulle. It aims to return to a rational international solution, similar to the one established at Bretton Woods, taking into account the evolution. The United States wants the demonetization of gold and the dominance of the dollar, supported by a reorganized IMF. Germany and Italy accept this role for the IMF, claiming that European veto rights will be a guarantee. Britain is in a terrible situation, but its position is moving closer to ours.”
“On the 29th, we will meet in Stockholm to discuss the IMF and special drawing rights. The Six are divided, and we are isolated.”
CDG: “The fight will be difficult. As for tactics, we will see. We would like to know Mr. Edgar Faure's sentiment.”
Edgar Faure: “We must oppose imperialism, but I am not in favor of gold. The demonetization of gold is the future, in line with the requirements of modern economy. I would willingly move towards an abstract international currency. Modern economic references should allow it.”
CDG: “However, one can doubt the stability of such a monetary construction.”
Debré: “Currency is a political phenomenon; it is not just an economic and technical matter. The system proposed by Mendès France (he prefers not to appear to attack Edgar Faure) is not imaginable today.”
Edgar Faure: “I was talking about orientations. Immediate implementation could be different.”
CDG: “All currency needs trust. Where is the trust today? On what basis will it be established tomorrow?”
Jeanneney: “Paper currencies have always been abstract, it is inevitable. But behind the abstraction, there was always the discipline of gold. We can have a completely abstract currency, at the national level, because there is political responsibility. But for an international currency, there would need to be an international government.”
“As for the current situation, we face a risk: the appreciation of the franc. That would be dreadful. We must avoid it, we must even avoid thinking about it. One way to prevent it would be to buy dollars. But we need to find something else, intervention techniques that prevent us from absorbing dollars. For example, intervening in the gold market.”
One after another, the ministers provide various opinions, summarized quite accurately by Couve.
Couve: “There were two reserve currencies. After the collapse of the pound, there is only one left, the dollar. For several years, we have requested the revaluation of gold, which would allow the United States to settle their debt, maintain the convertibility of the dollar, and create a monetary abundance favorable to the economy. This has not been done. Now, there are problems.”
“One: as for the day to day, we must not let the franc rise. Two: for long-term solutions, we must not say anything too simplistic; gold is essential but not sufficient; it is only a means of settling international balances. Three: there is the problem of international credit, which is settled at the IMF, it is inevitable; special drawing rights are not inherently absurd; but they must be practiced objectively, avoiding politics. Four: there is the question of maintaining cohesion among the Six.”
Pompidou: “Gold is neither the most precious metal nor the most stable. But it has long been the basis of the international monetary order. It is its policeman.”
CDG: “And the judge…”
Pompidou: “The problem is that of convertibility. The United States will have to revalue gold sooner or later. What to do? We will have to discuss it again, but I share Mr. Couve de Murville's opinions. What to say? Let's remain cautious and positive in our expression.”
CDG: “We need means of exchange. We need an international system in which there is confidence. The Gold Exchange Standard system is virtually over. We should not try to artificially prolong it. We can no longer base things on the dollar and the pound. We need a new system. This new system must be built on a solid foundation. There are two possible foundations: gold, which has experience on its side; and something abstract — but for that, we would need an exceptionally strong international government.”
“Currently, only gold is possible. But gold is not enough. We need to organize international credit, and thus restore the IMF as an impartial authority.”
“Concretely, the United States and Great Britain must absolutely restore their balance of payments. Britain has started and is not on a bad path. The United States have not yet taken action.”
“We must try to achieve a common position among the Six.”
“With regard to current encroachments — I mean the Kennedy Round — we will act in our interests; it is the only way not to make mistakes.”
Council of April 3, 1968.
Debré: “The Americans came to the Stockholm meeting with the objective of making it a step towards the demonetization of gold, that is, moving towards a universal dollar zone. I pleaded for currency discipline. I was met with silence. I found myself abandoned by our European partners. The submission of foreign delegates to the United States was total and humiliating.”
CDG: “Our political position is both excellent and difficult. Excellent because everyone can see that it's either gold or the dollar; there is a growing awareness. Difficult because the system is tainted by the subordination to the Americans, consented to by all our partners.”
But for him, this is not news.