E.E.C. gold exchange plan

Press, Volume CXIV, Issue 33520, 29 April 1974, Page 13

E.E.C. gold exchange plan

Oi Z P A.-Reuter—Copyright) LONDON, April 28. Nine European countries have opened the way to an enormous rise in the value of the world’s official gold reserves. They base decided, at a meeting of Common Market Ministers of Finance, that I central banks should in future be able to exchange gold among themselves at rates linked to the free market price. It has also been agreed in principle that central banks should be permitted to make limited gold purchases on; the free gold market, where; at present they are allowed; only to sell the meta). The gold held by central banks is now still officially; valued at only 5U542.22 an' ounce, whereas gold is traded on the free market at more than four times that amount. The buge difference between the official and free market price has. in effect, frozen the gold in national reserves. If the Europeans succeed in their objective — and this; means, in the first instance, trying to obtain the support of the United States — it, will potentially release huge additional sums of money for use in international settlements. At present, officia' world gold reserves are valued at aiound SUS43.OOOm. but. if linked to recent free market pr.es this same quantity of gold m ght well be worth m -re than SUS 172.000 m The gold reserves of the United States alone could rise in value from

SUSI 1,652 m to nearly! SUS4S,OOOm; of West Germany, from SUS49E6m to] SUSI9.9OOm; and of France.! .from SUS4262m to SUSI7,OOCm. Among the principal industrial countries, Britain and Japan are those that would benefit least, because a much smaller part of their reserves is in the form of gold. The value of Britain’s gold! stocks would rise from! SUSBB6m to about! SUS3SOOm, and Japan’s! from SUSB9Im to! SUS36OOm. Experts calculate that the! ,over-all effect of the pro-! posed changes would be to; mere than double the official! assets available for making international settlements. It is thought that, if wisely] used, the revalued official; Igold could have a stabilising! influence on the world's! troubled financial system. It! could be sold to the Arab ! States to mop up part of; their huge oil revenues, and' to take some of the strain! off the international banking; system. It could also be sold to private investors frightened: of holding paper money who might otherwise bid tip the: prices of other, more essential. commodities. But there are also fears that such a huge increase in official liquidity would fuel the fires of world inflation, which is widely regarded as ' the most dangerous econ-[ omic problem of the! moment. There is another danger: that it could undermined efforts to reform the worldmonetary system, one aim of]! which is to replace gold as;, the basis of the system with' the new. man-made paper/ asset, special drawing rights. If this is eventually to be achieved, it is necessary that's

■ gold is not made a more at■itractive or more stable asset (than S.D.R.s. ■; Countries may also be 'prevented from taking advantage of the new fa- ■ cility for buying gold on the free market to increase the : size of their official gold i stocks. However desirable it may; [be in the long term to !

“demonetise” gold, the importance of the meta! to the system at present is evident from the composition of world reserves. At the end of 1973. the dollar value of special drawing rights in international reserves totalled only [$USlO,625m compared with a gold component of ■ ; $U543,140m.