An International Money

March 27, 1961

Since West Germany revalued the mark on March 4, there has been a great deal of discussion concerning the probable effect of the change on its export and import trade, on its internal price level, and on the dollar. But one aspect of the change has attracted less attention than it deserves. The value of the mark was changed from 4.20 to the dollar to four to the dollar. In other words, the mark has been so revalued as to make it very simple mentally to translate one currency into the other. This is a step nearer to an international money.

Monetary reformers have long dreamed of a uniform international money. They have seen this as not merely a benefit to travelers but as a means of simplifying and facilitating all international trade, and comparisons of prices and statistics. This aim inspired the Latin Monetary Union in 1865, which embraced France, Belgium, Switzerland, Italy, and later Greece. While each country kept its own name for its currency unit, they established a one-to-one exchange ratio. Later Spain, Serbia, Bulgaria, and Rumania adopted the same currency unit. Sweden, Norway, and Denmark formed a monetary union of their own.

FRENCH PLAN OF 1872

In 1872 a French Imperial Commission proposed a scheme by which the leading world currencies would establish very simple ratios between each other and the franc:

Nothing came of the proposal. The first world war finally broke up both the Latin and Scandinavian monetary unions, because individual members resorted to inflation and exchange restrictions. But the breakup called attention to something that had been taken for granted. Most of the world had been on a common gold standard. And on that standard it was far closer to an international currency system than it has ever come since.

Let us see just how the full gold standard unified the currency systems of the world. When the currency unit of nearly every major country was defined as a specified weight of gold (previous to 1934 the American dollar, for example, was defined as 23.22 grains of pure gold), every such currency unit bore a fixed relation to every other currency unit of the same kind. It was convertible at that fixed ratio, on demand, to any amount and by anybody who held it, into any other gold currency unit. The result was in effect an international currency system. Gold was the medium of exchange.

THE GOLD STANDARD

The international gold standard enforced strict monetary discipline within each country. When one country began to inflate, its domestic prices rose, its imports increased, its exports fell, its balance of trade or payments became “unfavorable,” its currency unit in the world’s exchange markets dropped “below the gold point.” Gold started to flow out. To stop or reverse the gold flow, it had to stop inflating, and to allow its interest rates to rise. The international gold standard coordinated prices, interest rates, markets, demand, supply, trade, and production all over the world. It did not “break down.” It was abandoned precisely because politicians wanted to get rid of the discipline it enforced against domestic inflation and internal tampering with money.

The great present need is to restore and perfect this system. We should never go back to a relationship of incommensurable values, typified when the pound at par was $4.866,563. . . . This made calculations and conversions absurdly complicated. It often forced needless melting down of coins and recoining. While other currency units should today be aligned with the dollar, we on our side should offer to set a new gold weight for the dollar in terms of the metric system—say a gram or a round number of decigrams. Then every country would be responsible for maintaining its own currency at par—without constant rescue operations by an International Monetary Fund—by maintaining confidence, by refraining from reckless budget deficits and inflationary credit expansion. This would be a true internationalism.