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Facts on File
Why U.S. Opposes a Return to the Gold Standard
by Shih Yuan
[This article is reprinted from Peking Review, #9, Feb. 26, 1965, pp. 24-25.]
FRENCH President Charles de Gaulle’s recent call for an end to U.S. dollar dominance in the international monetary market and a return to the gold standard has met with an immediate spate of abuse from Washington. The alarmed U.S. rulers are apprehensive of losing their financial hegemony over the capitalist world.
It is well known that under the gold standard system gold is considered the only world currency in international payments. The French President’s proposal means that from now on gold should be used as the final medium in international payments and clearance. This would deprive the dollar of its privileged position as an “international currency,” and more than ever many countries would need gold rather than dollars and would rush to cash in dollars for gold from the United States. Consequently, there would be a still greater American gold outflow.
In the capitalist world, the U.S. dollar has occupied for 31 years a privileged position of equality to gold. Many capitalist countries kept the dollar as a reserve to support their domestic currency. Particularly in international payments and transactions, the dollar has enjoyed special prerogatives. Thus, the United States has actually become a central bank for the capitalist world, issuing paper currency and using it as an equivalent to gold. Such an abnormal state of affairs has given the U.S. Government innumerable advantages.
As a rule, a country cannot pay off its debt to another except by exporting goods or in gold. Payment in the currency of a debtor nation would not be accepted by a creditor nation. However, the United States takes advantage of the dollar’s supremacy and compels other countries to accept payment in dollars as a means of making up its own deficits.
All that the U.S. financial authorities need do to carry out expansionist and aggressive policies abroad is to print more dollars which are then used to grab huge amounts of foreign resources, buy over puppet governments and lease military bases. When their domestic economy and finances are in crisis, they can also shift or export the crisis to other countries. Nothing could be more beneficial to the United States. As Johnson admitted in his latest economic report, the position of the American dollar “is central to all U.S. objectives abroad.” Under such conditions, why should the United States be willing to give up the dollar’s position as an international currency?
The U.S. ruling class has been able to dominate the Western monetary world with the dollar only because it once held a great amount of gold.
As a result of the unstable political situation in Europe before World War II and the completely ravaged West European economy after that war, gold flowed into the United States. Hence, gold holdings in U.S. hands had amounted to 70 per cent of the capitalist world total for a long time, and the dollar, therefore, became the only currency which can be converted into gold at a fixed rate. Although the actual purchasing power of the dollar has dropped by more than 50 per cent over the past decades, the U.S. Treasury Department has continued purchasing gold from foreign countries at the official rate of 35 dollars an ounce. Since other countries do not have enough gold to back their own currencies, they had to take the dollar as a substitute for gold in international trade and payments. Even though they were dissatis4ed with this, they had no other choice except to bow to U.S. manipulation.
Since 1950, however, the strength of the other capitalist countries has gradually been revived and their gold reserves have increased rapidly. U.S. gold reserves, on the other hand, have been dwindling, and confidence in the dollar becomes more and more shaky. Under these circumstances, it is natural that the dollar as an international currency should have been opposed by the other countries.
As a matter of fact, the U.S. financial authorities have long called for support from the monetary authorities of the West European countries who possess large amounts of dollars, asking them not to convert their dollar holdings into gold.
While the reality of the dollar slump can no longer be concealed, the U.S. Government still holds fast to the dominating position of the dollar. The U.S. Secretary of the Treasury and other officials of the Johnson Administration have emphasized recently that the dollar will not be devaluated and the United States is determined to maintain the official rate of 35 dollars to one ounce of gold, an admission that Washington will not easily give up its financial hegemony unless it comes to the end of its rope.
Both the government and press in the United States in the past few weeks have made various attacks on the gold standard system, in an effort to find a way out of the difficult American situation caused by de Gaulle’s speech. They asserted that the gold standard system is out of date; that the total amount of gold in the world is far from enough, and if the dollar is not used to supplement gold, international trade and economy will be harmed by a “deflation,” and so forth. One would think international trade and economy could not go on even for a day without the dollar.
In fact, it is largely due to the unstability of the dollar that capitalist world finance—which is based on the dollar—has become so shaky today. Since 1958, because the United States has issued paper currency abroad on a more lavish scale, the dollar has suffered a tremendous loss of confidence, and the price of gold rose suddenly several times in the international financial market. Countries with huge dollar holdings and those keeping the dollar as their domestic monetary reserve were thrown into a state of panic, fearful that a sudden dollar devaluation would bring them unexpected disaster. The rise in the price of gold in London to 40 dollars an ounce in November 1960 flung the whole capitalist world into confusion, clear evidence of the prevailing panic.
The dollar is no equivalent to gold, to begin with. And now it has become a root cause of the Western world’s unstable monetary and financial situation. Therefore, the demand to reform the present Western International monetary system, which has the dollar as its foundation, is actually an irreversible trend. Although de Gaulle’s speech has provoked loud U.S. official outrage, West Germany, Italy, the Netherlands, Belgium, Luxembourg and other countries have expressed sympathy. This attests to the fact that on this question it is the United States and not France which has been isolated.
More and more the countries of Western Europe, which hold a great quantity of dollars and gold, have been controlling the destiny of the dollar. Thus, however hard the U.S. rulers may struggle, their days of hegemony in the international financial market are numbered.