The reform of the international monetary system can be approached from two different angles: that of rational analysis and theoretical perspective, and that of conflicts of interest among the countries concerned. Statesmen who argue about the merits of gold, and those who accept reform plans only within the framework of the International Monetary Fund, do not reason as scientists but as defenders of national interest as they perceive it. Economists tend, somewhat inconveniently, to overlook these conflicts of interest or to avoid discussing them. The examination of several reform plans allows the multiplicity of objectives pursued to be highlighted.
The role of gold
Since the attempt at Bretton Woods in 1944 to modify the rules governing international payments, no one has gone as far as Keynes in his proposals concerning the Bancor and a global Clearing Union. Keynes sought to construct a genuine mechanism for global compensation and credit, while deliberately retaining gold, not for theoretical reasons but out of realism. What was not possible at the end of the war is even less so today. Gold remains, and will remain, at the center of the international monetary system; to question this would be to enter the realm of utopia. The statements of the French Minister of Finance on this matter are particularly clear:
Why retain it? As the President of the Republic stated on February 5, because it is a unique element that does not change in nature, has no nationality, and is universally regarded as the ultimate fiduciary value. Also because, in the absence of a global financial authority—something no one realistically proposes to establish—it remains the only factor of impartiality and objectivity in international financial relations, in contrast to systems based on the accumulation of currencies or international credit instruments. Finally, even if one wished otherwise, it would be difficult to prevent public opinion from continuing to regard gold as the ultimate benchmark of the system, such that any move away from it would generate a perception of weakening in the international monetary framework.
This explanation reflects a high degree of realism and can serve as a starting point for presenting reform proposals. However, at no point does Giscard d’Estaing advocate a return to the gold standard:
Its handling, transport, and physical nature do not lend themselves to the speed and efficiency required for international financial transactions. Other forms of reserves and various types of international credit can be progressively adapted to meet diverse needs. Gold, by contrast, should remain as a stable and enduring reference standard. This is a position that could have been endorsed by representatives of all member countries of the International Monetary Fund. No better instrument has been devised than this metal which, once extracted, returns as quickly as possible to the vaults of central banks around the world.
It should be recalled, however, that in the absence of a world bank—a central bank of central banks—the banking systems of key-currency countries have so far played a significant role. For the reasons discussed previously, the roles of the dollar and the pound have increasingly been questioned in both thought and policy.
Monetary reform plans seek to achieve specific objectives in response to the challenges posed by international liquidity. These challenges concern both the creation and distribution of liquidity. It is not easy to determine precisely the need for international currency, which depends both on the desire to hold reserves and on the volume of international payments. Divergences among reform proposals stem from differing assessments of liquidity needs and from the role assigned to gold.
Since the end of the war, Great Britain has faced a similar problem within the sterling area, where the gap between gold reserves and “sterling balances” is even more pronounced. These balances, representing Britain’s short-term external debt, are three to four times greater than London’s gold reserves. It may be assumed that the cohesion of the sterling area is stronger than that of the Western world around the United States, and that holders of pounds will adhere longer to the “rules of the game.” Yet this remains a fragile hypothesis, as uncertain as the confidence placed in any currency. Nevertheless, the dollar does not appear to be on the verge of collapse. A general refusal to hold new dollar assets, combined with massive demands for conversion into gold, would be required to place the American currency—and with it the international monetary system—in a critical position. As long as France remains the only participant in this pressure, the “fortress” is unlikely to fall.
Despite differences in the assessment of risks inherent in the current situation, there is broad agreement among major industrial countries to examine various means of reforming the international monetary system. The number of proposed plans, whether put forward individually or on behalf of governments, has already become considerable.