Tesday, May1 , 971
THE MICHIGAN DAILY
Page Nine I
Tuesday~ May 1 1, 1971 THE MICHIGAN DAiLY Page Nine~r
1
American dollar sees history of crisis
{Conined from Page 6)
faith and disrupting the world
monetary system.
Instead, three other steps were
taken:
-Congress eliminated the re-
quirement that a fixed amount
of gold must be kept in the fed-
eral supply. As the total on hand
had been declining toward that
fixed amount, gold sales ha d
increased as buyers through the
United States would run out of
gold it could sell.
-The seven-member London
gold pool that includes the
United States set up a dual pric-
ing system. Gold sold in inter-
national mo n e tar y dealings
would remain at $35 an ounce,
but gold sold f or commercial
purposes such as jewelry or in
the private speculative market
would sell at a floating market
price.
A Member nations of the Inter-
national Monetary Fund approv-
ed a longstanding plan to create
Special Drawing Rights, or so
called paper gold. These ,ights
are essentially a bookkeeping
device based on solemn national
promises to honor them in mon-
etary transactions. Their crea-
tion provided for an orderly in-
crease in the monetary reserves
necessary for continuing world
trade expansion and took some
of the pressure off gold as the
source of such reserves.
Within three months of the
March crisis, gold was flowing
back to the United States,
By December 1969, demand
for gold by speculators was so
low that its price on the free
market was barely above the $35
monetary market price. Renew-
ed confidence in the world's pa-
per money was cited by experts
as a key reason.
Despite the easing of pressure
on the dollar in terms of gold,
it has remained occasionally un-
der pressure in relation to oth-
er currencies as the United
States continues to experience
balance-of-payments deficits.
In early autumn 1969, dollars
were heavily sold in favor of
West German marks. The Ger-
man government first set the
mark free to find its own value,
then in October 1969 revalued it
from 25 U.S. cents to 27.3 cents.
Internal German economic
considerations weighed heavily,
but speculators betting the Mark
would be revalued won.
Now West German currency
a g a i n is bringing pressure
against the dollar, a n d there
likely will be other crises still
ahead.
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