Auric Goldfinger, Henry Morgenthau, and Camp David: August 1971

Abstract

There were two dramatic changes in United States (U.S.) government policy toward the monetary role of gold in the last 100 years. The first was in 1933-34. Private holdings of gold were nationalized in March 1933. Then, the U.S. Treasury adopted a new parity for the U.S. dollar of $35.00 an ounce at the end of January 1934. Gold production surged, the private demand for gold fell sharply and the U.S. experienced large increases in the foreign demand for U.S. dollar securities. There was a massive flow of gold to the U.S. The second change in U.S. gold policy followed a meeting at Camp David in August 1971 when the U.S. Treasury closed its gold window because of the perception that there might be a run on its gold holdings as they declined toward $10 billion. Some U.S. officials sought to diminish the monetary role of gold, which was accomplished by, in effect, setting the U.S. monetary price at zero. The anticipation of some U.S. officials at the Camp David meeting was that the persistent U.S. payments problem would disappear once foreign currencies no longer had parities in terms of the U.S. dollar. The prices of these foreign currencies would increase and the U.S. trade surplus would become larger. Instead, many foreign central banks became even larger buyers of U.S. dollar securities, which led to a higher price of the U.S. dollar and a U.S. trade deficit. The U.S. international investment position morphed from the world’s largest creditor country to the world’s largest debtor.