ECONOMIC

The official price of gold was raised from $35 per ounce to $38 per ounceby the Smithsonian Agreement in December 1971. It rose from $38 to $42.22an ounce in conjunction with the announcement early in 1973 that thedollar would be devalued in terms of SDR's. The price of gold in theprivate bullion market in London increased from $65 at the end of 1972to $112 at the end of 1973, having reached a peak of $127 on June 5 andJuly 6. Since the market price of gold has been almost three times as highas the price at which governments have fixed the price of gold for officialtransactions, countries that hold gold have been reluctant to use it in internationalsettlements. As a first step to unfreezing gold, a number of countrieswhich had previously agreed not to buy or sell official gold in the free marketdecided to end that agreement in November. While IMF rules still prohibitofficial gold purchases from the private market when the free market price isabove the official price, official sales to the private market are permittedwhen the free market price is above the official price. Snnce the market priceis now nearly three times the official price, central banks would now be in aposition to sell gold from the market without violating IMF rules. No countryhas yet announced, however, whether or when it intends to sell gold tothe market.PLANNING THE FUTURE INTERNATIONALMONETARY SYSTEMDiscussions begun in 1972 by the Committee of Twenty on reform ofthe international monetary system continued during 1973. The state ofthese discussions at the time of the annual meeting of the InternationalMonetary Fund in Nairobi during September was summarized in a documententitled First Outline of Reform. It is a report in which the chairmanof the committee cites the issues on which some measure of agreement hasbeen reached, points of disagreement, and suggestions by members of thecommittee about ways of dealing with outstanding issues.The current international monetary arrangements have been evolvingas countries have made pragmatic adjustments to changing realitiesin the international economy. In making these adjustments, governmentshave been influenced by the discussions in the Committee of Twenty, justas those discussions have been influenced by the experiences gained with theinterim arrangements. In the discussion below, the long-term alternativesare examined within a framework that encompasses both the Bretton Woodssystem and the current interim arrangements.The Exchange Rate RegimeThe central function of an international monetary system is to facilitatethe exchange of one currency for another in such a way that trade andinvestments can take place across national frontiers almost as easily as withina given country. There are various ways of organizing the exchange of onecurrency for another. They differ chiefly in their methods of assuring that202