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This will not however be easy. Our balance of payments position worsened in 1967 with a huge deficit of four point six billion four point six billion dollars compared to a deficit of 1.4 billion. In 1966 the outlook for our balance of payments position is not right for 1968 and the first half of the year is off to a very bad start. The balance of payments position is made up of two basic parts. The private sector the balance of trade made up of private sector investments overseas plus or minus the net of our country's exports and imports. And the public sector. Government spending overseas made up of military programs assistance programs and maintenance of U.S. embassies consulates and missions around the world. Private industry can be proud of its own as reflected in their record in the balance of trade. This earned surplus averaged around 5 billion dollars over the years
1960 to 65. It dropped a 3.7 billion and 66. Swung up again in 67 to four and a half billion dollars. But it's off to a very poor start in 1968. Early figures indicate a sharp drop in during May we registered the first deficit balance of trade figures for many a year. This is a very serious situation for it has only been through the high performance of our trade figures that we have been able to keep our overall balance of payments deficit under control. In January of 1968 President Johnson proposed a program designed to reduce payments deficit. He was going to reduce it by 3 billion dollars under a program that called for a mandatory regulation restricting investment of U.S. dollars overseas by U.S. individuals and corporations. Under this program he proposed a savings of 1 billion
dollars a voluntary research drawn straight program on the banks lending US dollars abroad. This program was designed to save a half a billion. A proposed restraint program on the private travel abroad another half a billion. The return of 35000 U.S. troops from abroad another savings of half a billion. And finally a reduction of U.S. government spending overseas across the board. To produce another half a billion say. This program unfortunately has met with a lot of public resistance. We cannot quarrel with the end results and vision a savings of 3 billion dollars in our U.S. spending abroad. But we must somehow back this program whether we like it and. Perhaps if the American public had more confidence more confidence in our government more confidence in our own ability we would be more willing to make
personal sacrifices and help back up this particular program. If the deficit trend and our balance of payments is not reversed or at least arrested in the second half of this year we may again see extraordinary pressures develop on our international monetary system. Now up to this point I've been reviewing and I have not painted a very happy picture. In fact they're rather gloomy picture from my opening remarks on the Revolution through a review of the declining gold supply in the gold situation. A peek at the target IMF agreements to a review of confidence in our country and the balance of payments deficit. There is little encouragement for the future. But there is some there is still enough gold to supply our world needs for a few years. The IMF is still functioning. Many of us at home and abroad still have confidence in our country. And though the balance of payments problem looks
hopeless I doubt that it is. The reason wonderful cooperation demonstrated by the central banks of the IMF countries has probably brought us a breather for two or three more years. A short period of time. In which we may get our house in order. And when I say we I mean all the member countries of the IMF and not just the United States. Now let's turn to the remedies other reforms that might put or help put our house in order. Where do we go from here. To start with we will retrace our steps on the trip through the gold situation through the Bretton Woods confidence and our international balance of payments problem. I think that we must accept the premise that the free world goals of blood will not be sufficient to meet the liquidity requirements of continuing vigorous international trade growth. I do not believe that doubling the price of gold will
provide this required liquidity. We must look further. We must look to a substitute to either replace or supplement our gold supply. Here we come to the most exciting and the most encouraging part of the whole future picture. About six years ago world leaders became painfully aware. That the growing international monetary problems. Concerned businessmen and bankers. Government leaders European central bankers economists and ACT Government academicians sat down together and began the top. Views were exchanged and issues are subjected to exhaustive study. For probably the first time in history the international financial leaders of the world were working together preparing for a crisis before it happened on an unheard of scale. The central bankers of the world free world that is. We're cooperating
with one another. The climax of these discourses was reached in Rio de Janeiro last September when the members of the IMF made the momentous decision to create the special drawing rights as supplementary reserves regardless of your feelings toward the future effectiveness of these so-called asked. You simply must feel excitement over this revolution that has taken place. Truly a revolution 20th century phenomena in a constructive sense. Imagine for fasters bankers economists and central bankers and politicians and business leaders of the world sitting down together and working to solve a crisis before it happened. Our politicians in striped pants diplomats. Kings and generals for centuries before have failed to do this and have failed to solve problems far less important. It could well be that we're now entering a new age and age where international
problems will be solved peacefully through World Trade through the business and academic sides of our world. Working together the proposed special drawing rights the US represent an important international financial development probably the most important sense of Bretton Woods Conference and possibly one that will be more important than the Bretton Woods conference. The exciting discussions that I've just referred to have actually been negotiations for reform of our international monetary system. These negotiations over the period of the past six years have revolved through three points or three degrees of thinking. At first there was a period of agreement that no basic change was necessary in our international monetary structure. And then gradually as Justin thinking took place and they felt that well maybe some future change would be necessary but that this change could be restricted to the
major industrial members of the IMF countries. But finally after years of deliberation the swinging thinking occurred a swing to the present feeling that the change was eminent and that any real farm must be a basically foreign to our International Monetary Fund. These courageous and thinking negotiators drew up a proposal for such a reform of the IMF and the Rio de Janiero conference they'd authorized to put the drawing of a draft amendment to the Bretton Woods Conference the first time that anyone has considered a change in the old structure and subsequent meetings held in Washington and Stockholm. Stern and rational steps were taken to prevent a monetary collapse provisional approval for the plan of a special drawing rights was given by the pan leading nations in the Stockholm meeting. The amendments to the Bretton
Woods agreement must be ratified by the member countries. Once these amendments are ratified the member governments of the IMF by 85 percent majority of weighted votes can bring the FDI into being. It isn't dissipated that the asked the will be activated slowly possibly two or three billion dollars per year for the first five year period. They will be subject to constant review by the IMF and by the member countries. Hopefully they will be implemented by 1969. But even if they're delayed until 1970 probably will not do too much. At present it is proposed that the SDR be planned for a five year period and reviewed at the end of this period. The success or failure of the plan and the world economic conditions existing at that time will determine the future of this new type of international money.
The Asti are proposed to be allocated among the member countries according to the country's own quotas and the IMF. Thus the USA would receive an allocation of about 24 percent of the world's total. The FDA will not be the posits in the IMF and they will therefore not be claims on the IMF and may not be transferred or drawn out in gold or U.S. dollars they will be fully transferable. One country to another there will be a new international money and their volume will be controlled by the IMF very much as the Federal Reserve bank controls the need for money in the United States depending on the liquidity requirements under the present system and member country requiring assistance from the IMF. May make a drawing in the currency of their requirement and dependent on the members goal transposition as the hours will
differ materially from these old drawing rights as the years can be used at the discretion of the country holding them and subject only to a few very minor restrictions. They will not be repayable on a fixed schedule over a period of years as are the old drawing rights and they will actually add to the money supply of the world. They will be a reserve asset and reserve assets on a par with gold and the US dollar. There will be a few limitations to the use of the proposed as is. No country will be required to accept as the as if its own holdings already exceed 300 percent of their allocation. This provision is designed to protect any one country. From an obligation to finance the deficit of any one or more of the other countries with no replacement necessary. A provision was
drawn to prevent a member country from immediately drawing down all of their allocated rights and using them fully. As I said they will be permitted to draw down as little or as much as they want to at any time. They can draw down 100 percent. And make use of these rights for a period of several years. However over a given 5 year period they must maintain a 30 percent average of their allocated reserves on you. One of the most important features of the US is the lack of any tie to the gold supply. The Ask isn't vision today as it is a vision that will not do away with gold as a reserve but will supplement the gold supply and will afford a degree of liquidity that gold itself cannot and does not provide because there will be no tie to gold. No member country will be permitted to convert their FDI into gold. The extent of the future development of the US will as I have already remarked
be determined by their success in the next five to 10 year period. In the mean time and as a stopgap measure we are operating on a new system referred to as a 2 2 year old system. This plan permits that gold can be exchanged freely among the central banks at the $35 per ounce guaranteed rate but that it is not available from the central banks to the private sector and at the same time it permits gold to circulate in the private sector on a free market and seek its own price. This system appears to be working satisfactorily at the present time. And it may be then you'd indefinitely. Certainly until the SD as I brought into being in sufficient volume to supply the needed liquidity. There are amendments to the Bretton Woods Agreement is a revolutionary proposal. It transforms the IMF from a vendor of currency is contributed by the member
countries into the custody of a new international monetary system with the power to create new paper money that just some day might replace the existing reserves. There appears to be growing support among economists and central bankers for a new system that would transfer all of the official gold now held by the central banks of the government belonging to the IMF. Transfer this bill to the IMF. The central banks under this plan would receive special drawing rights in return for the gold deposit with the International Monetary Fund. And the International Monetary Fund would then over a period of time. Salis gold into the free market as it was needed at its discretion at times decided by the fund and at prices set by the fund. In this fashion the money the goal of the official reserves could flow into the private market without disrupting the private gold market. And you would have us
control of the monetize ation of gold. Things look bright. A solution of the gold problem may be in sight. A solution brought about by years of hard work and cooperation by the leaders of the free world countries. And what is most important. This has been achieved without the destruction of the old. The Bretton Woods Amendment agreement has been amended. To. Not destroy. The IMF has taken on a new stature and will play an even more important part in the international monetary policy. The IMF will have the power to create international money that someday may represent our entire world reserve. In the meantime gold in the U.S. dollar must continue to serve as the world's assets until the IMF has time to function. Until the IMF can bring the special drawing rights into being in sufficient volume to relieve the U.S. dollar
from this pressure. We must be patient and work toward. To restore confidence. And this brings us back to the third topic. Have confidence in the balance of payments deficit. Let's first take another look at the balance of payments problem. There is no easy solution. And unfortunately the Asti will not help the United States solve this problem. Yes these were not designed to help the United States solve its critical deficit problem. And if they had been I seriously doubt that the other member countries would have voted for the approval to this plan. As a matter of fact some members have said that we must solve our deficit of payments problem before they will see bringing into being of any of the US. I dought that creation of a limited amount of Asti will be blocked pending the solution of a deficit or payment problem if we do not end our balance of payments deficit
However over the next three or four years. The broader international picture that I have presented may fade away. Our friends in the European central banks may tire of supporting gold may tire back and the integrity of the U.S. dollar. If this should happen we could be plunged back into another critical international crisis and we could lose the remainder of our gold supply. If this happens we will see a rise in the price of gold and a further deterioration of the dollar. What then can we do to end our balance of payments deficit. First we must restore confidence the international monetary crisis is not over. Far from it. Our first priority must be to preserve the integrity of the dollar. The U.S. must firmly do its part to curb inflation at home. We have finally taken these necessary fiscal actions and raise taxes. President Johnson has inaugurated programs to reduce spending and Congress is helping him
with a great big shopping bags. We must find ways to allow our fiscal policy to work with greater freedom from political bias and political bickering. We must continue on the home front. And find exam examples of cooperation shown by the IMF countries. And we must seek cooperation and discussion between our business governmental and academic leaders. We cannot cite a major war and serve as the world's bankers rebuild our cities give massive foreign aid increase welfare programs etc.. And tonight I'm all at one time our economic strength is great but it is not inexhaustible. We must be realistic and set a schedule of projects based on priorities and we must have patients. If a pet project is the lead Labor must exercise responsibility and Cece demands for inflationary wage increases.
Private business must cease demands for more profits through higher prices. I believe that the present restrictions of foreign capital investment should be removed and tax incentives to encourage business to repatriate U.S. dollars earned and held abroad. Tax incentives should be given the manufacture and the export to encourage exports of U.S. goods abroad. Private citizens should be willing to curb their unnecessary travel until a deficit is under control. Government must cut spending overseas to the bone and much of this can be done through efficiency rather than terminations of needed programs. U.S. aid programs should not be terminated but they should be carefully reviewed and controlled. We should demand financial support for our NATO forces from our allies and this is not forthcoming. We should
bring our troops home. We have an orderly approach is made to all of these things and if we can get the cooperation of business government and other leaders together we can solve the balance of payments deficit. We can regain confidence of Americans at home and friends abroad. We have console cycle back to the beginning one revolution. I presented you with a definition for revolution a change produced by as a result of the change of circumstances. A short supply of gold represents a change of circumstance from a surplus supply we are rapidly approaching a deficit supply of gold to meet the world's hungry artistic industrial and liquidity the Manns the six year study consisting of discussions among the world's business leaders represents the change produced by time. From these dialogues has come the development of a revolutionary new money.
From this revolution. We may have the start of a new kind of world cooperation from the US as we may have a new international money that will eventually replace gold and the US dollar as a world reserve assets from this revolution we may be freed of the pens on an inadequate gold supply and we may be freed of any dependence on the US dollar. The success of these dreams however is dependent on our efforts at home to curb inflation. But our house in order and wipe out our balance of payments deficit to do this we must have confidence and act on 3 confidence and I lose and confidence in the American way of life. Thank you. Thank you sir Now we open the session to questions from the floor. Question news
what precisely was the amount of the Soviet Block gold reserves and has released upon the international hunt of the Soviet gold reserves. What is the what is the amount of the of the year's Soviet gold reserves I know it's a closely guarded secret and there aren't even any accurate estimates as far as I know no deciding what effect would would have would this have if this were dumped on the world market. SS gold were dumped in the gold market with a very large amount of it have a way to drive the price of gold down to nothing in the free market it would be an excess of gold and the pressures would be more on the on the Saudi government and on the Union of South Africa than others. What else. Union of South Africa would be under it being the major producer of free world goal would be put in a very bad blighted situation. The governments of the Soviet bloc countries would themselves suffer by driving the price of gold down. I don't think it would have
too serious an effect on the free world. Therefore I don't think they'll do it. Questioning continued as Mr Holder was asked Aren't we in the United States in a privileged position having the dollar as the standard value for the monetary system of the free world. And if so what is this worth to us. I would say we're behind the eight ball having the Dow acting as a reserve currency frankly that puts tremendous strains on the United States government. And on our strength. This was done in 1944 under the agreement of Bretton Woods agreement because we were at that time economically for the strongest of any of the other countries the UK was still very strong but the dollar was used as the begging currency because of the economic strength of our country. And because of the US. There have been tremendous drains placed on the economy of our country. If this were not true you wouldn't see the big
deficit the balance of payments that we have today because that deficit a balance of payments represents a great amount of financing of other countries shortages a lack of goals a lack of liquidity in the world reserves have been financed through our deficit. So I'd say it was a strain on us rather than a problem. It's an honor I guess to be considered in that position. Thank you sir. I know that we've all benefited enormously from what I would call a beautifully balanced presentation one that would be worthy of an academicians that. We have gained considerable insight here into the delicate area of international finance and international monetary manipulations. This is for the average layman is obviously a very mysterious field an unknown one whose importance I don't think the layman has anywhere near appreciating whereas we may be fighting a war which is very spectacular in Vietnam the developments in the field of international monetary affairs can be equally spectacular in a sort of a
quiet subterranean way as in many instances what goes on underneath the service is not always visible until the service finally begins to crack and then it's a little too late. This is therefore very very encouraging to hear about the developers that have taken place that you mentioned here. AS. A preventive medicine in the presentation creation of Estee hours and such. I think when you spoke of confidence of course here anybody who studied economics knows the meaning of confidence and confidence is a product product of many things the product of stability is the product of leadership. It's a product of intelligence connivance of realities. And I think that I wouldn't be far Miss surf and speaking of this term I would say that listening to you hearing your brilliant presentation your sophistication and knowledge ability. We are encouraging confidence in so far as our own aspect of the whole problem goes. Thank you very much.
Mr Richard Aedy ocal speaking at the twenty sixth annual Institute on world affairs. His topic in keeping with this institute central theme of revolution was interim monetary problems. Where do we go from here. This is James H Mason inviting you to join us next week on the series for another presentation from the Institute on world affairs. This program was produced by the Department of Telecommunications and film at San Diego State College in California. This is the national educational radio network.
Revolution: 20th century phenomenon
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#8 (Reel 2)
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University of Maryland (College Park, Maryland)
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APA: Revolution: 20th century phenomenon; #8 (Reel 2). Boston, MA: University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC. Retrieved from