The Gold and Foreign Exchange Reserves

The united states deficit has been matched by offsetting surpluses in other countries.

A good example is the payments of balance of various countries for the years 1958 through 1964.

The 'official settlements' definition is used since this concept provides the most consistent basis for international comparison.

Indeed, for virtually the entire period, the U.S. deficit was matched closely by EEC surpluses. Among the EEC countries, France has maintained a consistent and sizable surplus since the devaluation of the franc in 1958.

Germany also had sizable surpluses in 1958, 1960, and 1963, while Italy has run consistent, but smaller, surpluses except in 1963.

However, when the Unites States' deficit in 1960 reached its peak for the postwar period, a noticeable sustained trend toward smaller deficits appeared which is reflected in smaller EEC surpluses since that year.

Further deficit improvements in the United States' deficit position is the result of a number of forces, including conscious policy actions.

This suggests that if aid and military expenditures were reduced, developing nations would suffer directly, while Europe would find its foreign receipts falling.

The gold and foreign exchange reserves (virtually all dollars) were chartered for 1950, 1958, and 1964. The American and British postwar balance of payments deficits were reflected in the falling reserve totals of each.

In 1950, the United States had almost 70 percent of the free world's monetary gold, but by 1964 it was only 35 percent.

In 1964, the EEC countries had only $2 billion less gold than the United States, a massive redistribution over a period of fourteen years, most of which occurred in the six years between 1958 and 1964.

Moreover, the U.S., Britain, Japan, and the EEC countries held their reserves primarily in gold and which have accepted foreign exchange, primarily dollars, in settlement of the surpluses.

But also important, the surplus countries have divided the additions to their reserves between gold and foreign exchange.

This is very significant during the period since 1958 when the U.S. balance of payments problem has been acute.

Germany, for example, has added roughly $1 billion to her total reserves since 1958, but all of the addition has been in gold, while her foreign exchange (dollars) holdings have actually declined.

Similarly, the Netherlands has added to her reserves, primarily in gold; France has added considerably to both gold and foreign exchange holdings, although the campaign to convert additional dollars to gold has reduced France's foreign exchange holdings during 1965.

Thus Italy, Belgium, and Japan are the only major countries which hold the additions to their reserves primarily in foreign exchange, thereby alleviating a gold loss by the United States.