13. About Gold for Europe

(L’Opinion, November 1, 1951)

A book by Dr. Schacht could not go unnoticed. The one whose translation has just appeared under the title Gold for Europe is of course primarily destined for Germany. But the mechanism it suggests would be of interest to any other country of Europe.

Here is the resume:

The American government lends to the Bank for International Settlements a billion gold dollars without interest. This gold is deposited to the credit of the B. I. S. in the American Federal Reserve Bank in New York. Thus the gold does not leave the United States. Likewise, the B.I.S. issues in Germany certificates based on the gold and equivalent to the gold, under the name, for example, of gold thalers.

These thalers are lent at an interest rate of 3 1/2 per cent, allowing an amortization of thirty years of the debt contracted by the German borrowers. The amortization will be carried out in American dollars, deposited at the Bank for International Settlements.

With these dollars, the B.I.S. buys gold in the United States and thus creates a fund that can amount to a billion gold thalers. The B.I.S. will therefore be in a position at the end of thirty years to reimburse the gold lent to it by the American government and deposited in the Federal Reserve Bank, creating at the same time an equivalent gold fund by its gold purchases in the United States. This new gold fund will serve henceforth as the basis for circulation of gold thalers, which of course will be kept in Germany. Thus will be created, thanks to a long-term loan without interest, a gold basis for the German monetary system.

This is the monetary aspect of the solution. But it has another: that is the reconstitution of a long-term capital in Germany itself. The gold thalers lent by the B.I.S. to German industrialists will serve exclusively to facilitate the foreign commerce of Germany. These thalers will be furnished to industrialists or exporters, preferably those sending their products to the United States, since the profits will be realized in American dollars in order to allow the B.I.S., which will collect the interest from its loans in dollars, to buy, thanks to them, the gold which will constitute little by little a new metal coverage for the gold thalers that are in circulation.

Such is the machinery imagined by Dr. Schacht. Obviously, the intervention of the B.I.S. in this circuit is only a means of giving the operation an international character. In reality, the gold would be lent to Germany under the control of the B.I.S. and credits would be granted according to the suggestions of the Bank of issue in Germany. The initial operation, the lending of gold without interest by the American government, would be in reality a gift for thirty years of part of the American gold holdings in order to permit the reconstitution of a gold-reserve in Germany.

In order for the transaction to be used immediately for the stabilization of the paper money circulating in Germany at the present time under the name of Deutsche Mark, it would obviously be necessary to establish a rate of exchange between the new gold thaler and this money. The task of maintaining this currency as stable as possible would be left to the Bank of issue in Germany. At the end of a relatively short time all contracts would be stipulated in gold thalers, so that in practice the Germany currency would be equivalent to gold.

Such is the project of Dr. Schacht. He presupposes as an essential condition that German foreign trade would develop sufficiently to allow the dollar loans to be paid back regularly.

Thus if such a project were to extend to all European countries it would imply for each one of them, in spite of increased competition, the possibility of acquiring sufficient dollars to pay the interest.

It would thus be necessary for the United States itself to have an unfavorable balance of payments in its transactions with the European countries as a whole.

Hence, the monetary problem goes hand in hand with the commercial problem. But, inversely, the commercial problem cannot be solved without a solution of the monetary problem, and at the present moment it is the latter that takes precedence over the former.

Why? Because the monetary problem, once it is solved, would make possible the return to international exchanges of capital on a short or long-term basis, without which it is inconceivable that the international accounts can be balanced. The hope of obtaining the stabilization of exchange-rates thanks to the sole balance of imports and exports of merchandise is futile. The English experience bears this out. And that is why the monetary problem and its solution must precede all others.

And this problem cannot be solved without recourse once again to the support of the United States.

Is it ready to give it?