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Germany promised U.S. in 1967 not to convert dollars to gold

Submitted by cpowell on 10:30AM ET Saturday, January 29, 2011. Section: Daily Dispatches
By Lars Schall
Saturday, January 29, 2011

Thanks to GATA consultant Dimitri Speck and U.S. economist James K. Galbraith, a copy of the so-called Blessing letter, written on March 30, 1967, can be published for the first time on the Internet. The letter's text refutes the widespread assumption among German gold bugs that the letter promised the U.S. government that the German central bank, the Bundesbank, would never relocate the German gold reserve from New York to Germany as long as U.S. troops were stationed in Germany. The letter has nothing to do with the location of the German gold reserve.

Instead, the letter, written by the Bundesbank's president at the time, Karl Blessing, and sent to the then-chairman of Board of Governors of the U.S. Federal Reserve System, William McChesney Martin Jr., made this important promise on behalf of the Bundesbank:

"By refraining from dollar conversions into gold from the United States Treasury, the Bundesbank has intended to contribute to international monetary cooperation and to avoid any disturbing effects on the foreign exchange and gold markets. You may be assured that also in the future the Bundesbank intends to continue this policy and to play its full part in contributing to international monetary cooperation."

Speck, author of the German-language book "Geheime Goldpolitik" ("Secret Gold Politics," about which more information is available at http://www.gata.org/node/9349), puts the Blessing letter in context:

"In 1967 the Americans and British threatened to reduce their troops in West Germany on account of the cost. Because of the Cold War, West Germany wanted to avoid a reduction in military forces but didn't want to pay more for those forces. Part of the resolution of the issue was the Blessing letter, which confirmed Germany's waiver of conversion of dollars into gold. Thus Germany, like other countries, bought security by accumulating dollar claims as foreign-exchange reserve.

"The right of governments to convert dollars into gold from the U.S. Treasury was canceled by the U.S. government in 1971. But four years earlier the Blessing letter affirmed the formal renunciation of the largest dollar holder, Germany, of conversions of dollars into gold. The letter was thus an essential step toward the global dollar standard, which was recognized already by the U.S. government and communicated in internal documents."

The Blessing letter is archived at the Lyndon B. Johnson Presidential Library in Austin, Texas. Because of his research, Speck gave the decisive encouragement for its publication here. Galbraith, a professor at the University of Texas in Austin and author of "The Predator State," gave the decisive help in obtaining a copy of the letter.

The Blessing letter can be viewed at GATA's Internet site here:

http://www.gata.org/files/BundesbankLetter-03-30-1967.pdf

An article in German about this discovery has been published simultaneously at the German Internet site Goldseiten here:

http://www.goldseiten.de/content/diverses/artikel.php?storyid=15325

And at the German Internet site Infokriegernews here:

http://www.infokriegernews.de/wordpress/2011/01/29/der-mysterioese-brief-in-austin-texas/