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gee Me, oo # iG ij Department of State TELEGR, Ana ; ae gta Ole? ; ae = serene — ; 90 RUENC § "DE RUFNCR 11120/1 BestiGa . zNY cocce 2% Q asieser Nan 6s Fu AMENBASSY PARIS: Peale a : oa. £0 Seesuate wegnoe mnmeprars SEK? 6 moa BA 40 1e STATE GRNC : : ; Bt . 4 CONE LDENTE A+ SECTION 1 OF 2 PARIS 11120 - i : DECLASSIFIED 23. if bxoIs cEDTO E.0. 12958, Sec. 3.6 i WHITE HOUSE FOR FRIED FROM . NLJ_ 95-767 23 DENTNG 1 By. wee’ NARA Date 378-77 1s THIS TELEGRAN CONTAINS-TEXT MEMORANDUM HANDED TO us SY KessLen | OF NETHERLANDS BANK. PLEASE INFORM URGENTLY ROBERT SOLOMON AT 4, FEDERAL RESERVE» 4 2. COVER NOTE, DATED MARCH 4, READS AS FOLLOWS: 4 NEGIN TEXT. TO MESSRS: DAAN, DEMING, ENNINGER, VAN LENNEP, MORSE, OSSOLA, RICK~ 3 PAGE @ RUFNCR 11120/1-€-@-W-F-1-P-E--T oe) EIT: AS A CONTRIBUTION TO OUR CONSIDERATIONS I ENCLOSE A PAPER ON THE: URGENCY TO REACH INTERNATIONAL AGREENENT ON CERTAIN RULES OF THE GAME WITH RESPECT TO THE RELATION BETWEEN GOLD AND THE NEW ASSET« Se NENORANUN, ALSO DATED HARCH 4, FOLLOWS: BEGIN TEXT ; THE GLD PROBLEM * (1) THE GOLD POOL HAD §-DEFICIT OF NEARLY $2062 MILLION IN 1967 OF WHICH MOARE THAN $1690 NILLION IN NOVEMBER AND DECEMSER. IN " JANUARY AND FEBRUARY i968 THE DEFICIT WAS MUCH SMALLER BUT STILL IN THE ORDER OF $1493 MILLION PER YEAR, THE DECLINE IN MONETARY GOLD STOCKS OF NON@COMMUNIST COUNTRIES IN 1967 WAS SOMEVHAT SMALLER THAN Ha OF THE GOLF POOL; IT CAN BE ESTIMATED AT NEARLY $1762 . ‘ 1a) THE GOLD LOSSES TN 1967 AND 1966 WERE ENTIRELY DUE TO.” SPECULATION. WITHOUT SPECULATION GOLD SUPPLY WOULD BE IN. THE ORDER | | COPY LB} LIBRARY, Sar PaGE 3 RUFNCR Iti2o/t CONF IOENTIAL® OF $1699 MILLION PER YEAR INCLUDING $259 MILLI RUSSTAN SALES, 4ND GOLD DEMAND FOR NON-SPECULATIVE. INDUSTRIAL “AND SAVINGS PURPOSES IN THE ORDER OF $1209 MILLION, LEAVING A POSITIVE MARGIN OF Sano NILLION. THIS POSITIVE WARGIN, HOVEVER, IS LIKELY TO DISAPPEAR AND TO TURN -INTO A NEGATIVE ONE WITHIN FOUR OR FLVE:YEARS, DUE TO THE esaRD TREND OF 7 10 8 PER CENT, PER YEAR OF NON-SPECULATEVE GOLD AND « (3) IT 18 UNLIKELY THAT THE INTERNATIONAL HONETARY. SYSTEM COULD Sind ok ONG tone SPECULATIVE CRISES LIKE SINCE FEBRUARY 29 CONFIRMS THIS VULNERABILITY.IN ORDER TO HAVE A CHANCE TO NAINTAIN THE PRESENTSYSTEM OF FIXED EXCHANGE RATES AND @ GOLD PRICE OF $35 PER OUNCE IT IS a MATTER OF URGENCY TO REACH INTERNATIONAL AGREENENT ON THE “RULES OF THE GAME” THAT COULD MAKE } THE SYSTEM OF $.D.R.°S IMMUNE TO GOLD LOSSES. (6) THESE RULES WILL HAVE TO BE MORE BASIC THAN JUST A "HOLDING OPERATION". THEY HAVE TO BE SO SIMPLE AND CONVINCING THAT IT BECOMES CRISTAL-CLEAR TQ SPECULATORS THAT THERE IS NO POINT ANY < MORE IN SPECULATING ON AN INCREASE IN THE PRICE OF GOLD..IT IS i ONLY THEN THAT THE SPECULATIVE DEMAND FOR GOLD WILL SUBSIDE AND 4 THAT, VERY LIKELY, DISHOARDING WILL TAKE PLACE, WHICH FOR A WHILE < WaY OFFSET THE GRADUAL APPEARANCE AND GROWTH OF A DEFIIT ow “NOW-SPECULATIVE ACCOUNT. (1_IN ORDER TO ESTABLISH BEYOND DOUBT THAT THE SYSTEM Is IMMUNE + TO GOLD LOSSES TWO CONDITIONS HAVE TO BE NET? Ca) THE NEW RESERVE ASSETS SHOULD BE EFFECTIVE NOT ONLY TO Ae RESERVES" BUT ALSO TO (SUPPLERENT AND REPLACE QPet BT .MOTE! HANDLED AS NODIS PER $/S-0 3/6/68 ao am: 2 a g i i i 4 Cory Lay LIBRARY.