Toward Paper Gold

An accord arrived at in Stockholm last weekend moved the international monetary system another uneasy step away from disaster. Nine of the top ten financial powers of the non-Communist world reached agreement on the form of a new kind of international money -- paper gold -- to supplement dollars, pounds and real gold in bank rolling world trade and investment. France refused to go along.

Some agreement was crucial as part of the effort to restore confidence in monetary arrangements, lately shaken by the gold crisis and buffeted by wrangles over the future role of gold in global finance. What the pact demonstrated is that most of the West's leading nations are still able to overcome parochial concerns and organize in the interest of economic stability.

Creation of the new monetary asset still must be ratified by countries representing four-fifths of the $20 billion in assets of the 107-nation International Monetary Fund. That process is expected to require about a year. The paper gold will go by the name Special Drawing Rights, or SDRs, and will be administered by the IMF. Though SDRs will consist entirely of entries on the IMF's ledgers, in proportion to each nation's regular IMF contributions, they will become a permanent addition to the monetary reserves of IMF countries. SDRs will be used to settle accounts between nations, which need growing reserves to sustain the growth of world trade. Without SDRs, most governments believe, trade would stagnate because newly mined gold is going into hoarding and industrial use while the U.S. and Britain are striving to limit their outflow of dollars and pounds.

On the Cliff. Tensions rose steadily all week as the finance ministers of the ten powers--the U.S., Britain, Canada, Sweden, Japan, France, West Germany, Italy, Belgium and The Netherlands--prepared for their conference in the turreted Foresta Hotel on a cliff overlooking Stockholm harbor. At a meeting of Common Market ministers in Brussels, France dropped a monkey wrench into the agenda by calling for a complete overhaul of today's monetary system and a return to the gold standard. The other five Common Mar ket countries rejected the idea on the ground that it was no time to debate the design of a new system when the old one verged on collapse. This was a sharp rebuff for the French, who have hoarded gold and warred against the U.S. dollar as a reserve currency.

Arriving at Stockholm airport, Finance Minister Michel Debre stirred more concern by repeating the French demands with embellishments. As the conference opened, club-wielding police broke up a demonstration against the Viet Nam war by 150 young Swedes, some of them carrying signs reading SUPPORT FOR THE DOLLAR IS SUPPORT FOR GENOCIDE and NO CREDITS TO U.S. MURDERERS. Treasury Secretary Henry Fowler, chief U.S. delegate, took a back entrance to avoid the melee.

Around a green-covered table in the Foresta, the clash of views was polite, if pointed. Debre, pressing for debate on the monetary system as a whole, came out formally for an increase in the official price of gold. A long silence ensued. Finally, German Economics Minister Karl Schiller registered his disagreement. Italy's Emilio Colombo sided with the Germans. The U.S.'s Fowler suggested that the real business of the meeting was the SDRs and asked that the group move briskly along in that area. It did.

Veto Powers. With strong support from all European countries and withdrawal of earlier objections by the U.S., the delegates agreed to French demands for a change in the IMF constitution to give the Common Market veto rights over major IMF decisions, a power now held only by the U.S. On the more substantive matter of the SDRs, France found itself in an isolated position.

In the end, the French refused to sign the communique, complaining that the idea of SDRs had become distorted since its inception, making them not only a credit but also an asset. France objected to this because it might help the U.S. with its balance of payments trouble. The SDRs, said Debre, have become "an expedient." All this did not take the French out of the SDR system for good; they could move back in.

While it would be better to have the French in, the system can work with out them. After ratification of the SDRs, a separate IMF decision will still be required to put the scheme into effect and to decide how much paper gold to issue. The U.S. would like to see up to $10 billion worth added to the present $70 billion in world reserves over the first five years. Of that, the U.S. would get $2.46 billion, the six Common Market countries $1.8 billion, Britain $1.2 billion and undeveloped countries $2.8 billion. Welcome as the new assets will be, they will provide no ultimate solution to the U.S. payments deficit. And if the U.S. fails to reduce that deficit in the meantime, votes to activate the SDRs may prove hard to muster.

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