De Gaulle is toppled

By November 18, 1967, the British Labour government of Harold Wilson bowed to the inevitable, despite strong pressure from Washington, and announced a 14 per cent devaluation of sterling from $2.80 down to $2.40 per pound, the first devaluation since 1949. The sterling crisis abated, but the dollar crisis was only just beginning.

Once sterling had been devalued, speculative pressures immediately turned to the U.S. dollar. International holders of dollars went to the gold discount window at the New York Federal Reserve and demanded their rightful gold in exchange. The market price of gold began an even steeper rise as a result, despite efforts of the U.S. Federal Reserve to dump its gold reserves onto the market to stop the rise. Washington, under the sway of the powerful dollar-based New York banks, adamantly refused to budge from the $35 per ounce offi cial valuation of gold. But the withdrawal of France, one of the largest holders of gold, from the Group of Ten gold pool, had intensifi ed Washington’s problem. By the end of the year, Washington’s offi cial gold stock had declined another $1 billion to only $12 billion.

DE GAULLE IS TOPPLED

The crisis gathered momentum into 1968, and between March 8 and March 15 of that year, the gold pool in London had to provide nearly 1,000 tons to hold the gold price. The weighing-room fl oor at the Bank of England, loaded with gold, almost collapsed under the weight. U.S. Air Force planes had been commandeered to rush gold in from the U.S. reserve at Fort Knox. On March 15, the U.S. requested a two-week closing of the London gold market.

By April, 1968, a special meeting of the Group of Ten was convened in Stockholm, at Washington’s request. U.S. offi cials planned to unveil yet another scheme, creation of a new ‘paper gold’ substitute through the IMF, so-called Special Drawing Rights (SDRs), in an effort to postpone the day of reckoning still further.

At the Stockholm gathering, designed to set the stage for offi cial IMF adoption of the Washington SDR scheme at the upcoming IMF meeting the following month, France defi antly blocked unanimous agreement, with France’s minister Michel Debré reasserting traditional French policy on a return to the original rules of Bretton Woods. De Gaulle’s adviser Rueff had repeatedly proposed a ‘shock’ devaluation of the U.S. dollar of 100 per cent against gold, which would have been elegantly simple, would have doubled offi cial U.S. gold reserves in dollar terms and would have been suffi cient to allow the United States

to convert the approximately $10 billion of foreign-held dollars, while still maintaining the value of its gold reserves as before. This would have been far more rational and painless in human terms than what ensued. But, tragically, it was not to result.9

Within days of the French refusal to back Washington’s SDR dollar bailout scheme, France itself was the target of the most serious political destabilization of the postwar period. Beginning with leftist students at the University of Strasbourg, soon all of France was brought to a chaotic halt as students rioted and struck across the country. In coordination with the political unrest (which, interestingly, the French Communist Party attempted to calm down), U.S. and British investment houses started a panic run on the French franc, which gained momentum as it was touted loudly in the Anglo-American fi nancial media.

The May 1968 student riots in France, were the result of the vested London and New York fi nancial interests in the one G-10 nation which continued to defy their mandate. Taking advantage of the new French law allowing full currency convertibility, these fi nancial houses began to cash in francs for gold, draining the French gold reserves by almost 30 per cent by the end of 1968, and bringing about a full-blown crisis in the franc.

Sadly, the Anglo-American counterattack succeeded. Within a year, de Gaulle was out of offi ce and France’s voice was severely weakened. One of his last meetings while still president, in February 1969, was with the British Ambassador to France, Christopher Soames. Once again, the general told Soames, in a broad review of French postwar policy, that Europe must be independent and that her independent stance had been profoundly compromised by the ‘pro-American’ sentiments of many European countries, most especially of Britain.10

One other country openly daring to defy the powerful fi nancial interests of London and New York at this time was the largest goldproducing country in the West, the Republic of South Africa. During the early part of 1968, South Africa refused to sell its newly-mined gold for pounds or dollars at the offi cial price of $35 per ounce. France and South Africa had been holding talks to form a new gold basis for reforming the Bretton Woods monetary order. This provoked a U.S.led central bank boycott of South Africa, a move again repeated by the same interests almost exactly 20 years later, in the mid 1980s.

But, despite the apparent decline of the French ‘threat,’ Washington and London’s success was to prove a Pyrrhic victory.