When I was last in the Elysée Palace, with a troop of bankers, we were given a speech of welcome from Jacques Chirac and the opportunity to taste French regional wines. This occasion, or so I imagine, will be more elaborate. A gold ingot will be escorted from the Banque de France by mounted outriders and arranged on a velvet cushion in front of the President. Heads will bow. This, he will proclaim, is the veritable brick pulled out of the wall forty years ago by my sainted predecessor, Charles de Gaulle — the brick that brought the house down. Let us honour his memory and learn from his example. There will be a suitable patter of sycophantic applause and a sideways sidle towards the Veuve Clicquot. (Note the golden label.) I just hope that my invitation has not miscarried, because time is running short and, then as now, the general had a point. At a press conference convened for the purpose in the cold February of 1965, he declared war on the dollar. Its supremacy gave the Americans what he called an exorbitant privilege: they could pay their bills by printing more, when their own wars — in Vietnam, at the time — required some expensive financing. The world’s money needed a surer foundation than this: ‘Truly, it is hard to imagine that it could be any standard other than gold — yes, gold, whose nature does not alter, which may be formed equally well into ingots, bars or coins, which has no nationality, and which has eternally and universally been regarded as the unalterable currency par excellence.’
Slamming the window
With that, the general went into action. He took France’s dollars to the window of the United States Treasury and asked to trade them for some of the gold in Fort Knox, at $35 an ounce — the price that Franklin Roosevelt had set years ago by throwing dice. The supply of dollars and of sellers multiplied. The whole rigid structure of exchange rates, fixed by arrangement with the International Monetary Fund, came under pressure. Our own dear Treasury tried to hold the line, selling gold from the nation’s reserves, before belatedly appearing at the window, clutching $3 billion in used notes and asking to trade them. That was the end. The window slammed shut. Exchange rates came unfixed. The world was now on a paper standard. The paper inflated, the standard deteriorated, the US Treasury favoured benign neglect of the dollar, the price of gold doubled in a fortnight and doubled again. De Gaulle had been vindicated.
Unspoiled by failure
Even the dollar, we could now see, was not proof against neglect. There were limits to its privilege. As with any other currency, don’t-care was made to care. It just took longer. Good news for holders of gold — except, of course, for the biggest holders of all: finance ministries, central banks and the IMF itself, which had developed ‘special drawing rights’, unconvincingly described as paper gold. This was a challenge to their authority and competition for their printed products. They got together to drive the price of gold down against themselves by dumping it on the market. In the end our own dear Treasury, under its present management, joined in. With timing no better than it had shown a generation earlier, it cleared out half the nation’s gold reserves at the lowest price available for two decades. Once this sale was out of the way, the price of gold took off and has never looked back for long. Quite unspoiled by failure, the Chancellor would now like the IMF to bail out Africa by selling gold.
At a stroke
Any banker worth his ink, or indeed any accountant, could turn the IMF into a cornucopia without shedding an ounce from its hoard. Its 3,217 tonnes of gold are still on the books at a price that Roosevelt might recognise. In the outside world where gold is traded, the price is some five or six times higher. The IMF need only revalue its stock to have all the capital it wanted and probably more than is good for it. (Giving capital to a bank, as Sibley’s Law reminds us, is like giving a gallon of beer to a drunk: you know what will become of it but you can’t tell which wall he will choose.) That, though, is an admission that the IMF or its attendant finance ministers would never make. It would imply that gold had been a better store of value than their paper, or even that de Gaulle was right.
The borrowers afloat
There will be no shortage of paper to digest in years to come. This is Goldman Sachs’s prognosis, looking at the US Treasury’s finances, as its political masters discover the hard way how much easier it is to turn a surplus into a deficit than to reverse it. Goldman expects the deficit to accumulate over a decade and add up to $4.8 trillion. Does that seem unappetising? This week brought hints that the big Far Eastern holders of dollars have quite enough on their plates and would like to try something else. Paper will be available in other flavours. Europe’s economies may have set themselves limits to their borrowing, and even signed a pact, but now that it has proved such an uncomfortable fit, they are quietly shrugging it off and getting ready to borrow more. It would be uncomfortable for us, too, if we had signed it, for our own dear Treasury is back in the habit of borrowing and has forecast more of the same for years ahead. With all this paper on offer, the world’s digestion may come under strain. A healthier diet would then recommend itself.
No man’s promise
The Elysée has me worried. My invitation has still not arrived. I suppose that the President may have reordered his schedule, for his visitor of this week is George W. Bush, and it might be tactless to commemorate an outbreak of monetary warfare between their two (sometimes friendly) countries. There will be other days to honour Charles de Gaulle’s prophetic insight, and his faith in the unalterable currency which cannot be run off a printing press and does not depend for its value on any minister’s or banker’s promise.