Two-tier gold system to be scrapped

Press, Volume CXIII, Issue 33383, 15 November 1973, Page 13

Two-tier gold system to be scrapped

f.V.Z.P.A.-Reuter—Copyrtflhf > WASHINGTON. November 14. In what could be a major move towards world monetary reform, the I nit cd States and six West European countries have agreed to scrap a five-year-old system of setting two prices for gold. The agreement, announced last night by the United States Federal Reserve Board ebairm.ni (Mr Arthur Burns) means that major central ban ks will be able to revert to buying and selling gold on the open hiarket.

Under the pact—signed in March, 1968, at a time of international monetary chaos and the biggest stampede for gold the world has ever seen —the United States, Britain, the Netherlands, Belgium, Switzerland, West Germany and Italv agreed to buy and sell gold among themselves at the official nrice dating back to 1934 of SUS3S an ounce.

They stopned sunnlving I gold to private markets] which were allowed to find! their own level. Todav the| so-called “official nrice” has] climbed to 5U542.22 an ounce] while the free market price—after soaring to a record; SUS 130 on the London mar-1 ket in June—was about; SUS 96 an ounce as of last night. United States monetary and market sources said that the decision—reached at a central bankers meeting in Basle, Switzerland, yesterday —was not completely unexpected. During the last few months there has been pressure for raising the official gold price or abandoning it as the cornerstone of the international monetary svstem and using snecial drawing rights, the abstract unit known as “paner gold” instead.

The United States Treason’ Under-Secretary (Mr Paul Volcker) told a ioint Congressional committee on international financial affairs yesterday that if central banks were allowed to sell void privately there was little more to be done to diminish gold’s role in international monetary affairs. Mr Bums told a press conference that there Was no special significance in the timing of the announcement and the subiect had been under discussion for a long time.

But events had overtaken the 1968 agreement, he said, noting that there had been no official gold market since August, 1971, when the United States stopned buying dollars from foreign central banks in exchange for gold. He declined to speculate on the effect of the announcement on the private market, although monetary sources believed that one immediate impact would be to push down the gold price on the London bullion exchange. Mr Bums said that the United States now considered itself bound bv International Monetary Fund (1.M.F.) rules

which prohibit central banks, such as the United States Federal Reserve, from buying gold at above or selling it below the official price. There was no immediate reaction from South Africa—the world’s biggest gold producer—which has regarded the 1968 agreement as a move to force it to sell its newlymined gold stocks on the free market. I The Pretoria Government [has repeatedly called for an [increase in tfie official price I of gold and the South African I Finance Minister (Mr INicoiaas Diederichs) has said [that it might be necessary Ito push it to about SUSISO |an ounce. I In Tokyo, Japanese monetary officials said the termination of the two-tier system was expected to cause a decline in free market gold prices and stabilise the world monetary situation.

There were no plans for the United States to sell gold from its stockpiles, now valued at more than SUS 11,000 million. Such a decision would be taken later, he added. But he stressed that he was speaking only for the United States and not for the six European countries. He said that he was confident none of the other central banks would buy or sell gold in the foreseeable future either from each or from private sources, though he added that there was no agreement prohibiting such transactions. France, which has the largest gold stockpile after the United States and West Ger-

imany, was not a party to the [latest pact, reached at t meeting this week in Basle Switzerland, because it die not take part in the 196 f agreement. The Australian gold industry would “fold up” if today’s j United States decision to disband the 1968 two-tier gok [system led to a sharp drop jin the price of gold on work [bullion markets, the presideni of the Australian Gold Pro ducers’ Association (Mr R. C Buckett) said today. “The industry has taker enough kicks in the last K months without having oni like this,” Mr Buckett said

le “It would just fold up if the a price dropped.” The Australian Gold Pros 'lducers’ Association and the d West Australian Government 18 are still awaiting a Federal Government reply to their 5- submission for a withdrawal ’s of a plan to tax goldmining | profits which closely followed d another decision to remove p investment allowances for d' the industry. it I Mr Buckett admitted sur- >-] prise at the United States 11 announcement which, he said, came after an International -n Monetary Fund refusal of the 2 [ same plan. “How the United le | States could do this I just 1 -don’t know," he said.