TWO-TIER GOLD SYSTEM

arrangement set up to protect international monetary reserves from the pressure of higher gold prices; under a two-tier system, monetary gold used as reserves would sell at a fixed price, and gold used as an ordinary commodity would sell at a freely fluctuating market-determined price. The system was formulated in an agreement reached by seven members of the London gold pool (Great Britain, West Germany, Switzerland, The Netherlands, Belgium, Italy, and the United States) on March 17, 1968. The monetary authorities agreed not to sell monetary gold on the London market or any other private gold market; the stock of officially held gold was to be maintained at the existing level and only transferred among countries in settling international debts. The governments agreed to cooperate to maintain the existing parities among their currencies and pledged not to sell gold to any country that had sold its official gold in private markets for a profit. Within weeks after the agreement had been formulated, most other countries had adhered to it. The expectation was that the market price of gold would settle above the monetary price of $35 an ounce, but, in fact, it fluctuated widely both above and below this price. The two-tier system lost its usefulness when the U.S. government terminated official trading in gold in August 1971; in November 1973 the system was terminated by agreement between the seven original adherents.