De Gaulle and international monetary relations

As soon as its restored balance of payments gave France a voice in the international arena, General de Gaulle began pointing out the failings of the International Monetary System and seeking to direct it towards greater equity between nations.

I – Restoring a stable balance of payments

One of General de Gaulle's first concerns on his return to power in 1958 was to see France regain its economic independence, seriously compromised by a heavy trade deficit.

As soon as the Stabilisation Plan of December 1958 began to take effect, he embarked on a programme of simultaneously rebuilding the nation's gold and currency reserves, which increased by 3 billion dollars between 1958 and 1964, and repaying its foreign debt. The sums being repaid consisted of France's recent draw-downs from the International Monetary Fund as well as debts contracted during and following the Second World War (Lend-Lease and the Blum-Byrnes loan of 1946). All were repaid by 1963.

To ensure that France exercised total control over its own reserves, de Gaulle, who still remembered America's war-time sequestration of French gold and currency assets, sent the French navy to repatriate Banque de France gold reserves deposited in New York with the Federal Reserve Bank.  

This newly achieved economic stability and the value of the franc were maintained for ten years, until the events of May 1968 caused major upheaval in the French economy. 

Massive wage increases and a serious crisis of confidence that led to a flight of capital out of the country weakened the franc and made devaluation seem inevitable. Devaluation was rejected by the General in November 1968, on the grounds that the devaluation would be a failure without a sufficiently rigorous Stabilisation Plan. It was not until August 1969, after the General stepped down, that the franc was devalued.

II – Reform of the International Monetary System

While France was gradually recovering its economic balance, the US balance of payments deteriorated steadily for a number of reasons: foreign aid, expanding US investments around the world (and in particular in Europe including France), inadequate control over domestic inflation and, above all, the cost of the Vietnam war.

Yet while other nations were obliged to settle their trade deficits in a currency other than their own, the US could do so by paying their creditors in dollars which those creditors agreed to hold.

The US enjoyed this privilege because, at least since the war, her trading partners lived in constant fear of running short of dollars (the "dollar gap") and because the International Monetary System set up at Bretton Woods was designed so that the various national currencies were linked to the price of gold expressed in dollars. A fall in the value of the dollar against the other currencies could therefore only be engineered by raising the price of gold expressed in dollars.

The inequality of the system had been noted by a number of economists, including Robert Triffin in 1959, and Jacques Rueff had for many years been an ardent protagonist of reform involving primarily an increase in the price of gold. Criticism of the system took on a far more directly political dimension, however, when expressed by a figure as striking as General de Gaulle, speaking in the name of a France which was no longer in debt to the USA.

Initially, General de Gaulle was not opposed to the suggestion, made by French experts themselves, that an international instrument of payment should be devised, along the lines of the European Payment Union settlement mechanism (1950-1958), which would be based on both gold and a "basket" of major currencies and which would be used by central banks in  their reciprocal settlement procedures (the "Collective Reserve Unit").

After it proved impossible to reach agreement, and after having converted dollars into gold on a number of occasions in order to maintain pressure on the USA, de Gaulle adopted a harder position in his famous press conference of 4 February 1965 and proposed a return to the principles of the gold standard.

While his attack on the dollar's privileges won general approval, the need to supplement gold with a complete system of credit facilities - which would have to be virtually automatic if they were to compete with and eventually replace the dollar - steered International Monetary System reform towards the creation of an instrument designed for use by the International Monetary Fund, Special Drawing Rights (SDR). 

France was not in favour of this solution, but its bargaining position had been seriously undermined by the events of May 1968. After de Gaulle left power, France gave its support to the creation of SDRs, although not without expressing scepticism as to the chances of success. That scepticism would prove to be fully justified.