It Is Unsound to Allow a Country Like the United States to Secure Automatic Financing of Its Deficits

RUEFF. This situation is the result of the use, over an extended period, of a well-known system, the gold-exchange standard. The result of the operation of this system is that, when the United States, for example, has a deficit, it pays dollars that are returned the same day to New York, where they are reinvested.

The deficit therefore does not affect the abundant supply of funds in New York; in this way, the deficits can continue indefinitely.

TRIFFIN. I agree entirely. Mr. Rueff has expressed, in a way to which I subscribe 99 percent, our two essential points of agreement. It is unsound to allow a country to secure automatic financing of its deficits.

--Jacques Rueff, The Monetary Sin of the West, trans. Roger Glémet (New York: The Macmillan Company, 1972), 108.

The Gold-Exchange Standard Was One of the Major Causes of the Wave of Speculation That Culminated in the September 1929 Crisis

By the same token, the gold-exchange standard was a formidable inflation factor. Funds that flowed back to Europe remained available in the United States. They were purely and simply increased twofold, enabling the American market to buy in Europe without ceasing to do so in the United States. As a result, the gold-exchange standard was one of the major causes of the wave of speculation that culminated in the September 1929 crisis. It delayed the moment when the braking effect that would otherwise have been the result of the gold standard's coming into play would have been felt. 

The wiser for this experience, I witnessed with great concern, after the Second World War, the resurgence of the practices that had brought about the Great Depression after the First World War. However, their consequences had been masked until 1958 because they were hidden and given an inverse orientation by the process of inflation in individual countries that had generated the dollar shortage.

--Jacques Rueff, The Monetary Sin of the West, trans. Roger Glémet (New York: The Macmillan Company, 1972), 19.

The Growing Similarities Between the International Monetary Developments of 1958-1961 and the Latter Part of 1926-1929

Some will no doubt be surprised that in 1961, practically alone in the world, I had the audacity to call attention to the dangers inherent in the international monetary system as it existed then. I must, however, pay a tribute here to my friend Professor Robert Triffin of Yale University, who also diagnosed the threat of the gold-exchange standard to the stability of the Western world. But while we agreed on the diagnosis, we differed widely as to the remedy to be applied. On the other hand, the late Professor Michael Heilperin, of the Graduate Institute of International Studies in Geneva, held a position in every respect close to mine.

My fears at the time were based essentially on the growing similarities between the international monetary developments of the years 1958-1961 and those of the latter part of the 1926-1929 period. There was the same accumulation of Anglo-Saxon currencies in the monetary reserves of European countries, in particular France, and the same inflation in creditor countries.

In both periods the monetary system was characterized by the widespread application of a specific, adventitious procedure that Anglo-Saxon countries termed the gold-exchange standard. . . .

Between 1930 and 1934 I was Financial Attaché in the French Embassy in London. In that capacity, I had noted day after day the dramatic sequence of events that turned the 1929 cyclical downturn into the Great Depression of 1931-1934. I knew that this tragedy was due to disruption of the international monetary system as a result of requests for reimbursement in gold of the dollar and sterling balances that had been so inconsiderately accumulated.

--Jacques Rueff, The Monetary Sin of the West, trans. Roger Glémet (New York: The Macmillan Company, 1972), 15-16.

The Gold-Exchange Standard: Inflation on the Sly

The gold-exchange standard is a misleading disguise that gives inflation the honest appearance of a procedure for the settlement of international liabilities. If central banks want inflation because they expect it to result in expansion, let them have it overtly and in broad daylight. They should not rely on capital shifts to bring it about for them on the sly.

--Jacques Rueff, The Monetary Sin of the West, trans. Roger Glémet (New York: The Macmillan Company, 1972), 47.