Exchange Stabilization Fund Recounts History of Gold Manipulation

by: SW Richmond

From the U.S. Treasury's web site, an [annotated] history of the Exchange Stabilization Fund, or ESF.

The following Treasury Department release documents some of the public history of FOREX / exchange interventions undertaken by Treasury. The document clearly establishes the fact of intervention by Treasury to adjust the FOREX value of the U.S. Dollar. This is not open to debate. One of the emboldened lines below also clearly establishes that these interventions were undertaken in the period 1961-1971 in an effort to encourage our trading partners to accept dollars instead of gold. In 1971, of course, Nixon ended convertibility and thus "floated" the entire world's FOREX.

Exchange-rate interventions continue, however. Why? The answer is simple: when convertibility ended, the lie of fiat currencies and the worthless "reserve" dollar was revealed to the entire world. Decades of posturing by central banks have convinced some, but not everyone, that gold is a "barbarous relic" and that men can be trusted with something as important as the power to create money out of thin air.

The ongoing need by ESF to conduct FOREX interventions is a direct result of the removal of gold convertibility. FOREX interventions are merely a substitute for gold transactions. FOREX interventions were largely unheard of when the dollar was backed by gold. The Treasury historical figures available begin in 1973.

Gold intervention

Gold is a currency and is recognized as such by the IMF. Even during "good" times, near constant FOREX interventions are needed to maintain the fiat system. But during times of crisis, FOREX intervention means gold intervention. It can be no other way. The only way that fiat currency interventions can work is if they are conducted hand-in-hand with gold price control. The reader is invited to read the whole of the extended quote below. I believe it is impossible to be intellectually honest while continuing to dismiss the link established below between gold and FOREX.

Clearly, FOREX interventions were undertaken by the Treasury in an effort to retain gold; the link between gold and the dollar is thus irrefutably established. Since convertibility ended, public confidence in fiat must be maintained by currency interventions; this is also clearly established. Gold is a currency. Central banks hold gold.

The ESF began to conduct foreign exchange market intervention transactions in 1934 and 1935. Also, it entered into credit arrangements, starting in 1936. From 1936 to the present, the ESF has participated in over a hundred credit or loan arrangements with foreign governments or central banks. After World War II, the ESF conducted Treasury's monetary gold transactions and widened its participation in credit arrangements.

Researchers should note that these data are for the ESF only and do not cover the operations of the Federal Reserve’s System Open Market Account (SOMA).


The Federal Reserve is not auditable and so only limited information regarding its share of FOREX intervention is known. However, the Fed is known to have recently engaged nearly $600 Billion of foreign central bank currency swaps, and at this time still has approximately $230 Billion of swaps on its balance sheet. We do not know how this money has been used.

Intervention Operations [What?? They Intervene??]

Treasury policy during 1961-71 period focused on deterring capital outflows from the United States and giving major foreign central banks an incentive to hold dollar reserves rather than demand gold from the U.S. gold stock

Gold is the ultimate capital; capital began to flee the USD when we began printing to finance the Vietnam war.

The ESF resumed intervention operations in the foreign exchange market in March of 1961 (for the first time since the mid-1930s), but it soon became apparent that the resources of the ESF alone were too small to sustain transactions of the magnitude necessary [we were printing like fevered dervishes, just like now]. At the invitation of the Treasury, the Federal Reserve joined in foreign exchange operations in February 1962. The Federal Reserve entered into a network of swap agreements with other central banks in order to obtain foreign currencies for short-term periods for use in absorbing forward sales of dollars by foreign central banks hedging exchange risk on their dollar holdings. To provide foreign currency to repay the Fed's swap drawings, the Treasury during the 1960s issued non-marketable foreign currency-denominated medium-term securities (Roosa bonds) and sold the proceeds to the Fed.

In August 1971, the United States ceased conducting gold transactions with foreign monetary authorities [Nixon ended convertibility], and the need to moderate the drain on the US gold stock was eliminated [we defaulted]. In December 1974, ESF turned over, in a sale at par value, a gold balance of 2.02 million ounces (valued at $85 million) to the Treasury General Account. This gold had been acquired prior to August 1971 through gold transactions that the ESF engaged in with foreign monetary authorities and with the market for the purpose of stabilizing the value of the dollar relative to gold. In a public announcement of this sale of gold by the ESF to the Treasury General Account, the Treasury stated that the sale was made "in view of the likelihood that the Exchange Stabilization Fund [would] not be engaging in further transactions to stabilize the value of the dollar relative to gold."

[To everyone who wants gold: we're keeping it so bugger off. If the gold had no value, and a genuine floating currency system was desired, why did they stop convertibility? Why does gold matter at all?]

The remainder of this document is a brief recap of ongoing efforts by central banks to maintain the fabulously failing floating fiat currency system. The reader can easily see that skepticism began early on when the US Treasury was forced to issue bonds denominated in foreign currencies, something the Japanese have recently suggested they'd like to see happen again. The FOREX stresses that are apparent in the following paragraphs are of course avoidable through an honest currency. What are the chances?]

Later in the 1970s, the US monetary authorities built up foreign currency reserves substantially. For this purpose, the ESF entered in a $1 billion swap agreement with the Bundesbank in January 1978 (which has since been allowed to expire). In connection with the dollar support program announced in November 1978, the Treasury issued foreign currency-denominated securities (Carter bonds) in the Swiss and German capital markets to acquire additional foreign currencies needed for sale in the market through the ESF. The United States also drew its reserve position in the IMF.

In the mid-1980s, the major industrial nations embarked on a process of intensified policy coordination. The Group of Five's (G-5) Plaza Agreement in September 1985 served to reinforce exchange rate adjustments among the major currencies and occasioned substantial coordinated intervention sales of dollars.

The G-5 "agreed that exchange rates should play a role in adjusting external imbalances … should better reflect fundamentals … and that … some further orderly appreciation of non-dollar currencies against the dollar is desirable."

In the Louvre Accord of February 1987, the major industrial countries agreed that the exchange rate changes since the Plaza Agreement would

increasingly contribute to reducing external imbalances and … [had] brought their currencies within ranges broadly consistent with underlying economic fundamentals …[and] agreed to cooperate closely to foster stability of exchange rates around current levels.

They adopted specific measures and cooperative arrangements reflecting their view that their currencies were broadly consistent with underlying economic fundamentals. This framework for cooperation on exchange rates complemented the broader economic policy coordination efforts to promote growth and external adjustment.

In December 1987, the Group of Seven (G-7) reaffirmed Louvre's basic objectives and policy directions and agreed to intensify their economic policy coordination efforts and to cooperate closely on exchange markets. There was continued active cooperation through late 1989, but such activities became less frequent thereafter and halted in mid-1990.

From the time of the Plaza Agreement until mid-1990, the U.S. monetary authorities were involved in episodes of net purchases of dollars vs. foreign currencies and episodes of net sales of dollars vs. foreign currencies. These operations were generally carried out in conjunction with operations by a number of other countries’ monetary authorities, including those of the major industrialized countries.

During 1993-1995, the U.S. monetary authorities again joined other monetary authorities in purchases of dollars vs. other major currencies. In one instance, this joint intervention was explicitly linked to a view among the G-7 countries that exchange rate movements had gone beyond levels justified by underlying economic conditions. In June 1998, the U.S. monetary authorities purchased yen in the context of Japan’s plans to strengthen its economy. In September 2000, the U.S. authorities bought euros in a coordinated intervention operation that the European Central Bank initiated out of concern about the potential implications of euro exchange rate movements for the world economy."

Disclosure: The author is not a financial professional. Please do your own Due Diligence. The author is long cash and holds various dollar short instruments including precious metals.