Gold as a Diplomatic Tool: How the Threat of Gold Purchases Worked as Leverage in International Monetary Relations, 1960–68

Abstract

During the 1960s the acquisition of gold became a political tool in the hands of European surplus countries. The possibility that the two largest dollar holders, the Federal Republic of Germany (FRG) and France, might convert all of their dollar reserves into gold and thus provoke the breakdown of the Bretton Woods system was hotly debated in the United States administration, in the press, and in Congress. Whilst Bonn agreed to cooperate with the US monetary authorities in exchange for tangible advantages, this was not the case with Paris; in fact, the French government was largely responsible for US anguish over the gold question -in three ways: by publicly contributing to harsh criticism of the dollar exchange system, by converting a large part of its dollar reserves into US gold, and by allowing the fear to persist that it might use its entire dollar holdings to purchase gold or incite the other Common Market countries to do so.