The balance of payments of the United States has been strongly in deficit since 1958. This continuous deficit has led to significant gold outflows. Gold reserves have declined while short-term external debt has increased. The evolution of the United States balance of payments between 1947 and 1962 highlights two significant balances: first, the current account balance, which includes imports and exports of goods and services; then the overall balance to be financed, which results either in a variation of gold reserves, a variation of short-term external debt, or both simultaneously. Thus, the overall deficit for the year 1958, amounting to 3.529 billion dollars, was financed by gold payments valued at 2.292 billion dollars, of which 17 million were drawn from the American quota in the I.M.F., and by an increase in short-term external debt of 1.237 billion dollars. (When using the expression “balance of payments” or “external deficit,” reference is made to this overall balance to be financed.)
From 1947 to 1949, the United States balance of payments showed a surplus, while from 1950 onward it was regularly in deficit. The surplus of 520 million dollars in 1957 is an exception largely explained by the repercussions of the Suez crisis on European trade. Despite the size and persistence of deficits between 1950 and 1956, concern did not arise until 1958, along with what became known as the “dollar crisis.” The deficit of 1950 (6.3 billion dollars) is of the same order of magnitude as the deficit of 1958 (3.5 billion dollars). However, the causes of the external imbalance in 1949 were due to temporary circumstances, such as European devaluations against the dollar and the Korean War. Moreover, this deficit decreased considerably in 1951 and never exceeded 2 billion dollars except in 1953. From 1958 onward, the external deficit was always above this figure, even exceeding 3 billion dollars for three consecutive years: 1958 (3.5), 1959 (3.7), and 1960 (3.9).
Another worrying sign concerns the rapid decline in gold reserves since 1958: between 1953 and 1958, these reserves decreased by 1.5 billion dollars, whereas between 1958 and 1962 the decrease reached 4.5 billion dollars; the pace of reserve depletion was thus three times faster during the latter period. Consequently, the balance of the United States’ international liquidity reserves deteriorated. In 1948, U.S. gold holdings amounted to 24.4 billion dollars, while short-term external debt (representing the dollar assets held by the rest of the world) stood at 6.1 billion dollars. This debt is convertible into gold, at the request of its holders, at a rate of 35 dollars per ounce. The existence of this debt stems from the use of the dollar as an international currency. For certain countries, it is even more advantageous to hold liquidity reserves in the form of deposits or short-term investments in dollars (or pounds), which yield interest, rather than gold, which yields none. In 1960, this short-term external debt had tripled compared to 1948, reaching more than 17 billion dollars, equal to the total value of gold reserves. By 1963, continuing its rise, external debt reached 21.3 billion dollars, exceeding gold reserves by more than 6 billion, as these stood at only 15.6 billion dollars. The situation became, if not dangerous, at least uncomfortable, as it risked undermining the confidence of foreign holders of dollars.
For the moment, no global panic appears to be emerging in the form of a flight from the dollar. Only France is progressively requesting the conversion into gold of the dollars it holds in the United States. Despite the persistent deficit of the U.S. balance of payments, the dollar remains a sound reserve currency, as it is generally accepted. Holding the currency of a country as economically and politically powerful as the United States does not appear unreasonable to most countries. However, it should be noted that the proportion of U.S. deficits financed in dollars—that is, through increases in external debt—has been declining. Between 1953 and 1956, 82% of annual deficits were paid directly in dollars and 18% through gold payments (taking into account the U.S. position in the I.M.F.). Between 1958 and 1962, only 52% of deficits could be financed in dollars. This would suggest a slight weakening in the acceptance of the dollar as an international currency. Nevertheless, it remains necessary to identify the main causes of the U.S. external deficit in order to determine the conditions and likelihood of a reversal of this trend.
The Causes of the External Imbalance of the United States
Table I provides an initial answer to this question: the fundamental cause of the U.S. external deficit does not lie in current payments for goods and services, whose balance has consistently been in surplus (except in 1959), but in the export of private and public capital. American private investments in Europe, as well as military and economic aid provided by the U.S. government to numerous countries in the Far East, Africa, and South America, constitute the essential causes of the significant imbalance in the U.S. balance of payments.