the crisis of the monetary and credit system of capitalism, reflected in the abolition of the gold standard and the transition to an inflationary paper money circulation and embracing both internal circulation in individual capitalist countries and international accounts. The general monetary crisis is distinguished from a local crisis.
The general monetary crisis is a component part of the general crisis of capitalism and has a permanent nature. A degeneration of the world capitalist monetary system is taking place. After having been consolidated and perfected as a component part of the world market before World War I, the system began to weaken and to experience increasingly frequent shocks during the period of the general crisis of capitalism.
An important feature of the general monetary crisis was the process of the “demonetization” of gold, that is, the decline of the role of gold as a monetary metal and the depreciation of currencies. The “demonetization” of gold began with the abolition of the convertibility of paper banknotes into gold during World War I in many capitalist countries (Great Britain, France, Germany, Russia, and others) and with the removal of gold from internal monetary circulation. After World War I there were attempts in capitalist countries to restore the gold standard in its reduced forms: gold ingots and gold notes. These attempts ended in failure during the world economic crisis of 1929-33. In 1929-30, Argentina, Bolivia, Brazil, and several other agrarian countries abandoned the gold standard. The gold standard was abolished in Great Britain in 1931, in the USA in 1933; and in France, Belgium, the Netherlands, and other countries from 1934 to 1936. By the end of 1936 the whole capitalist world was seized by inflation, which grew worse during World War II. By the end of the 1960’s, the formal convertibility of currency into gold had been preserved only in the USA. However, the American treasury only exchanges gold for dollars with the central banks of capitalist countries. It is forbidden for individuals in the USA to possess monetary gold.
In the sphere of international economic relations, the general monetary crisis is reflected in the chronic disorder of the balance of payments in capitalist countries, the increasingly uneven distribution of gold currency reserves, the decline in the exchange rate of many currencies, and so on. The shift to the dollar standard and the broad application by capitalist states of restrictions on the outflow of gold led to the reduction of the use of gold in international accounts. After World War II this process was reinforced as a result of efforts by the ruling circles of the USA to impose the dollar as a world currency on capitalist countries instead of gold. Their policy of artificially lowering the price of gold facilitated the USA’s purchase of gold in other countries in the years immediately following the war. By the end of 1949 the USA possessed more than 70 percent of the official reserves of gold of the capitalist world. This made possible a widespread use of dollars by the USA in international accounts, a practice which further undermined the stability of the world capitalist monetary system. The low official price of gold ($35 per 1 troy ounce), which was established in 1934 and maintained from 1961 until 1968 by the USA with the help of the Gold Pool (including the USA, Great Britain, West Germany, France until June 1967, Italy, Switzerland, Belgium, and the Netherlands) seriously impeded the growth of gold extraction and contributed to the increase in demand for this metal by individuals. This aggravated the problem of international monetary liquidity, that is, the lack of sufficient gold reserves to ensure the continuity of payments of foreign debts by many capitalist countries. At the end of 1969 the official gold reserves of the capitalist countries added up to $41,000,000,000, the level of 1961, although international payments for the intervening period had doubled. In March 1968 the Gold Pool was dissolved, and the price of gold rose on the free market to $42 to $44 dollars per ounce (May 1969) or 20-25 percent higher than the official price. Simultaneously, the USA insisted on the conclusion of an agreement between the leading capitalist countries by virtue of which their practice of buying gold on the free market in order to increase their official reserves would cease. In accordance with the agreement of 1969, official gold reserves could be increased only by purchases of gold by central banks from the International Monetary Fund (IMF), which increased its own reserves by the purchase of gold from the Republic of South Africa. This arrangement aggravated even more the problem of international monetary liquidity. In 1969 the IMF adopted and, on Jan. 1, 1970, put into effect a plan devised under the initiative of the USA for the issuing of surrogates for world money in the form of so-called Special Drawing Rights (SDR’s). These were additional obligations for members of the IMF to grant each other credit in proportion to their quota in fixed capital. This plan had the object of further curtailing the sphere of gold usage in international accounts.
An important feature of the general monetary crisis is the process of disintegration of the single world monetary system. With the split of the single world market into the world capitalist and world socialist markets, a world socialist monetary system has formed and developed. The sharpening of the struggle for selling markets and for sources of raw materials during the general crisis of capitalism led to the creation of currency zones. As a result of the breakup of the colonial system of imperialism after World War II, the collapse of these currency zones began to be felt, and new currency groupings created by the developing countries appeared.
The general monetary crisis is characterized by an increase in the importance of the international migration of speculative monetary capital. The amount of capital transferred from country to country in the search for more profitable investment has attained huge proportions. The volume of purely speculative operations has increased. Between the end of 1967 and the beginning of 1968, individuals invested from $2.5 to $3 billion in gold in the expectation of an increase in the official price. In November 1968 and in April 1969, from $5 to $6 billion flowed out of France. This capital was invested in banks in West Germany in the expectation of a devaluation of the franc and a revaluation (that is, an increase by legislative decree of the gold content) of the mark. Such transfers of capital greatly upset balances of payments and aggravated the instability of the world capitalist monetary system.
The general monetary crisis is characterized by an increase in the interference of the bourgeois state in the sphere of international settlements and of internal monetary circulation (a process of increasing state involvement in gold and monetary resources has taken place; instances of the use of devaluations in the interests of monopolies has become more frequent; the application of currency restrictions has broadened; the role of state banks has grown; and so on). Government interference in the sphere of foreign-exchange relations increased especially during and after World War II. In monetary relations between states, the role of non-economic factors has increased: diplomatic pressure, political upheaval responsible for the transfer of capital, and so on.
A local monetary crisis is a crisis in the currency of an individual capitalist country that occurs as a result of a general economic crisis, war, inflation, or other factors and that is of a temporary nature (although it may still be very prolonged). At the root of a local monetary crisis lie the inflationary process and the depreciation of currencies on the internal markets, in addition to the appearance and growth of a deficit in the balance of payments leading to the exhaustion of foreign exchange reserves, a decline in exchange rates, and devaluations. Local monetary crises, which were observed even before World War I, become increasingly deep and frequent in the period of the general crisis of capitalism and, striking the leading capitalist countries, periodically rock the whole world capitalist monetary system. In order to overcome local monetary crises, capitalist states are forced to resort to devaluations, to introduce currency restrictions, to renege on the payment of external debts, to resort to foreign loans, and to take other such steps. Therefore a local monetary crisis in one country can cause and does cause a monetary crisis in other countries.
From 1958 to 1968 all capitalist countries experienced the effects of a prolonged local monetary crisis that struck the USA. The total deficit in the balance of payments of the USA from 1958 to 1968 amounted to more than $30,000,000,000, which was covered by the export of $ 12,000,000,000 in gold (more than half of the whole stock of the USA’s gold in 1958) and by an increase of $18 billion in short-term debts to other countries. This situation undermined faith in American currency, served as a reason for the rush on gold in expectation of a devaluation of the dollar, and led to the gold fever of the end of 1967 and the beginning of 1968. Attempts by the USA to restore a favorable balance of payments by means of restrictions on the export of capital, the encouragement of commodity exports, the curtailment of American tourist travel abroad, and so on had a negative effect on the economies of many countries. The world capitalist monetary system and above all the countries of the sterling zone were repeatedly afflicted by the local monetary crises in Britain, which were associated with the deficit in the balance of payments caused, in the first place, by heavy military expenditures in that country. The devaluation of the pound sterling in 1967, expressed in the lowering of its exchange rate by 14.3 percent, caused currency devaluations in approximately 30 capitalist countries.
In the 1960’s local monetary crises affected the leading capitalist countries. In order to overcome them, these countries entered into so-called international financial cooperation (joint credits of the leading capitalist countries for Great Britain in 1964 and in 1967, and for France in July and November of 1968; the organization of the Gold Pool; and similar actions).
Monetary crises occur as a result of the sharpening of capitalist contradictions. They do not occur in conditions of socialist world economy. Regular, planned development of the economy is the basis for the stability and constant improvement of the monetary and credit system of socialist countries. The absence of chronic deficits in their balance of payments and the presence of sufficient monetary reserves ensure the timely fulfillment of all external monetary obligations by socialist countries. Monetary and financial problems in the world socialist market are resolved by all countries involved by reaching agreed-upon and mutually acceptable solutions.
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M. P. MIRONOV