Gold Fingers, Etc.
Cabbages and Kings
Although a substantial number of erstwhile economists have accurately diagnosed the malady of the present world monetary system, only a few have ventured to propose a solution--and none, until now, has discovered the correct one.
The malady of the present system is symptomized by a deficiency in liquidity and a fundamental dis-equilibrium. In this system central banks use a mixture of gold and foreign exchange as reserve assets--meaning that they back a portion of their currency with dollars and pounds. Every central bank has the legal right to convert its dollars to pounds at the rate set by the U.S. Treasury: 35 dollars to the ounce. But every central bank knows that the U.S. Treasury just doesn't have enough gold to redeem every dollar in foreign hands. Therefore, every central bank is reluctant to hold dollars as reserves when other central banks are exchanging their own dollars for gold.
When Americans spend more abroad than foreigners spend here, the U.S. suffers a balance of payments deficit, dollars flow out of this country and other central banks begin demanding gold in exchange for their currency. The gold stock declines. People begin to doubt that the U.S. will always have enough gold to maintain the present rate of exchange. And a run on the dollar, precipitated by the fear of devaluation would cause a major world crisis by undermining the value of the dollars which central banks use as reserve assets.
As the U.S. balance of payments deficit grows, this fear is spreading. Charles de Gaulle, who is now carrying on an open money war with the U.S. just to prove that the present system won't world, insists on returning to the gold standard. Most economists believe that the gold standard would cause periodic recessions in every country--sacrificing economic growth and full employment for monetary stability. But they all agree that some kind of change is necessary.
Clearly, the world needs a new reserve asset. Just as clearly, it needs to get rid of Charles de Gaulle. Fortunately, to pose that two-fold problem is to solve it. I propose that the world abandon gold, establish a new monetary unit, and use Charles de Gaulle himself as the reserve asset. Instead of the gold outflow, we would have the De Gaulle outflow. And, since De Gaulle would be allowed to say whatever he pleased, wherever he were stationed, it is doubtful that many countries would cash in their extra currency.
De Gaulle might be permanently located in one money market, Paris for example, and accredited to different governments with the rank of "Permanent Ingot." Since the monetary system would depend on world confidence in his physical existence, he might be placed on a high throne above the squealing money-traders; and, if the amount of money in circulation depended on the General's evaluation of his role in history, there would be an ever-expanding supply of currency.
On his death, I admit, there would be a certain inevitable amount of devaluation. And yet, if his body were preserved and embalmed on that high throne, I have no doubt that the exchange rate would recover. The Paris money market--the scene of his greatest triumph--would become his permanent resting place. His spirit would pass from that earthly shell through the veins of the monetary system to all corners of the earth. His very being would animate each franc, each dollar, each ruble, rupee, and drachma. And, long after his death, statesmen would journey to inspect the great French general, the leader of men who proved far more valuable dead than alive.