READING: Raymond Aron (1965): Qui Perd Gagne?
From “Le Figaro”, February 16, 1965 :: the first appearance in print of “exorbitant privilege”, with Raymond Aron quoting from a speech by then-French Finance Minister Valéry Giscard d’Estiang…
I was lazy. Thus the translation is the unedited and unchecked <http://translate.google.org> version:
The gold exchange standard has taken the place of multilateral force as the stake in the latest quarrels between Washington and Paris.
Washington’s response to General de Gaulle’s press conference was as weak in words as in actions. Why proclaim that the dollar is worth gold at a time when the ten billion dollars held by foreign central banks represent two-thirds of the US gold stock? If these central banks converted all their dollars into gold, the stock remaining in the United States would be roughly equal to the French stock.
The truth seems to me to be that the dollar is worth both more and less than gold. The American currency is worth less, since despite the most solemn assertions, the possibility of a revaluation of gold is not excluded. It is worth more, in this sense, that those who keep the dollars increase each year their reserves of interest earned on investments on the markets across the Atlantic. After ten years, the central bank of the Federal Republic, for example, took out a serious guarantee against the risk of devaluation.
The measures announced by President Johnson did not shake the skepticism of observers. Extending the 15% tax to bank loans will be little more effective than the tax itself was. In fact, the whole question is whether the president will obtain through persuasion what he refuses to impose through measures, either traditional (raising the interest rate) or administrative (control of capital exports). The dollar remains freely convertible for American citizens, it is only theoretically convertible for foreign central banks.
These, however, will not follow the example of the Banque de France. Most Europeans, Germans and Dutch in particular, agree with French ministers in criticizing Washington’s policy. Whether or not they are hostile to American investments, whether or not they want a return to the gold standard as mentioned by General de Gaulle, they judge that the accumulation of dollar balances since 1958 has reached or exceeds the tolerable volume. And they too would readily lose patience.
But two considerations prompt them to be cautious. The first is General de Gaulle’s reputation for anti-Americanism. The words of the Head of State or the Minister of Finance are not judged solely on their explicit content. Rightly or wrongly, our European partners suspect diplomatic intentions and only the most resolute supporters of the gold standard risk subscribing unreservedly to the French theses, for fear that their attitude would seem an approval of what is happening. appears abroad as an anti-American crusade.
But the reluctance of our European partners has yet another reason. Even those who condemn the current system fear its collapse. Suppose the Labor government is forced to devalue the pound. What would the French government do? Either it would maintain the current value of the franc and, in this case, British exports would enjoy an additional benefit at a time when our trade balance is barely balanced; or it would devalue the franc in the same proportion as the pound. Such a measure, even if the mechanical effect were weak, would compromise the stabilization plan.
A devaluation of the pound would not be a Pyrrhic victory for France or the franc; it would only be a success in the game of who-loses-wins. Likewise, suppose that the American authorities were one day to proclaim an embargo on gold. A free market would be established in which the price of the precious metal would rise above the official rate. Here again, the French government would be particularly embarrassed to react. The men of my generation have not lost the memory of the years 1931-1935. While Anglo-Saxon currencies were devalued, the value of the franc was proudly maintained, but the French economy was ruined. In short, our partners do not refuse to put pressure on the American authorities; they fear triggering a crisis of which the entire Western world would be a victim.
Moreover, the choice of methods will divide the countries in agreement in criticism. The Europeans are in favor of all measures that would limit the outflow of American capital, but the Canadians and the Japanese fear them. As for the Germans, they are afraid of a withdrawal of American troops stationed in Europe. Is this withdrawal, often announced by French spokespersons, desired or feared by our government?
Mr. Giscard d’Estaing, in his recent speech, said that the country whose currency served as a reserve enjoyed an exorbitant privilege: in the event of a deficit, the United States does not need to take restrictive measures. The argument, the Minister of Finance knows better than anyone, is only half true. Britain, despite or, rather, because of the international role of the pound, has less freedom of action than the countries of the continent; it is forced to raise the interest rate or reduce the budgetary impasse in the event of an external deficit, exactly like France in a similar situation. If the United States has not been forced to take restrictive measures, it is because their prices have been stable since 1960.
American privilege is largely responsible for the origin of the deficit, namely capital outflows. The day when expansion across the Atlantic slows down, when the capital market is closed to foreigners, will Europe have reason to celebrate? General de Gaulle’s press conference had the merit of presenting in a dramatic manner a problem hitherto reserved for experts. It had the disadvantage of creating the false impression of a battle where one must win, whereas an American defeat would be, for the French economy, if not a defeat, at least a severe test.
Aron, Raymond. 1965. “ Qui perd gagne?” Le Figaro, February 16, p. 1, col. 475. In Les articles du Figaro, vol. II. Paris: Editions de Fallois. <https://www.google.com/books/edition/Les_articles_du_Figaro_volume_2/86CoEAAAQBAJ?hl=en&gbpv=1&dq=%22en+cas+de+d%C3%A9ficit,+les+%C3%89tats-Unis+n%27ont+pas+besoin+de+prendre+des+mesures+restrictives%22&pg=PT1852&printsec=frontcover>.