Letter to Alan Greenspan and John Taylor
Thank you for responding to my letter of May 8 regarding the United States' support for Article 4, Section 2b of the International Monetary Fund (IMF)'s Articles of Agreement, which prohibits IMF members from linking their currencies to gold. Unfortunately, your response did not answer my question regarding the United States' continued support of this policy.
I also take issue with some of the assertions made in your respective replies. In particular, I disagree with Mr. Taylor's statement that, "In recent years, many of those countries choosing flexible exchange rates systems have also placed much greater emphasis on price stability. This greater commitment to price stability, if adhered to, can bring much of the same benefits of gold or commodity linking."
Contrary to Mr. Taylor's assertion, what we have around the world today is not price stability but price instability. Furthermore, floating exchange rates, where major currencies can vary against one another by 30% to 50%, is unfair to multinational industrial firms, working people, and small countries. Nobel Laureate Robert Mundell has stated that "I believe that exchange rate volatility is a major threat to prosperity in the world today."
Former Federal Reserve Chairman Paul Volcker has pointed out that "a global economy requires a global currency," rasing the question of what should serve as the global currency? Historically, there is only one monetary system that provides financial stability: gold-as-money. Yet the IMF denies this system to the very countries most in need of a stable currency and the United States continues to acquiesce in this policy.
Even those who disagree with the above analysis should agree that the decision to link a currency to gold should be made by individual countries, not the IMF. Since Article 4, Section 2b of the International Monetary Fund (IMF)'s Articles of Agreement appears to conflict with sound economics and respect for national sovereignty, I would appreciate a more specific explanation of why the United States supports this policy. Please contact Mr. Norman Singleton, my legislative director, if you have any questions regarding this request. Thank you for your attention to this important matter.
August 17, 2002