Joint Resolution of U.S. Congress of June 5, 1933
- International Monetary Fund
- Published Date:
- January 1976
The U.S. Treasury Department issued a statement on December 9, 1974 that refers to a problem of domestic law in the United States. The statement was made as a result of the inquiries the Treasury had received after the announcement of the repeal of the restrictions on the private ownership of gold that became effective on December 31, 1974.151 The inquiries dealt with the continuing validity of the Joint Resolution enacted by the Congress of the United States on June 5, 1933.152 The preamble of the resolution declares that in the emergency existing at that time obligations were being entered into that gave the obligee a right to require payment “in gold or a particular kind of coin or currency of the United States, or in an amount in money of the United States measured thereby,” and that these obligations obstructed the power of Congress to regulate the value of the money of the United States and were inconsistent with the policy of Congress to maintain at all times the equal purchasing power of every dollar of the United States. Congress resolved, therefore, that provisions giving rise to these obligations were against public policy and would be discharged dollar for dollar. The term “obligation” for this purpose was defined as an obligation “payable in money of the United States.”
In its reply to these inquiries, the Treasury stated that in its view the Joint Resolution would continue to apply. Therefore, in its opinion, contracts containing multiple-currency clauses would continue to be unenforceable because the Supreme Court in the late 1930s had construed the resolution to prevent the enforcement of these clauses. The statement noted, however, that multicurrency clauses were now in common use in international financial markets. For example, bonds were issued and denominated in Eurcos and provided for payment in a number of European currencies in an amount measured by an index composed of these currencies. The statement recalled that the Secretary of the Treasury had said that consideration of a change in the law at the next session of Congress would be desirable in order to allow U.S. businessmen to deal safely in this kind of instrument.
On June 11, 1974, a member of the House of Representatives had proposed the inclusion of the following provision in H.R. 15311:
The provisions of the gold clause joint resolution of June 5, 1933 (31 U.S.C. 463) shall not apply to any multicurrency obligation providing for payment in dollars or a foreign currency or foreign currencies.
The provision was deleted as unnecessary in the context in which it appeared.
The same congressman introduced H.R. 8324 on June 26, 1975 (A Bill to Declare the Public Policy of the United States and to Remove All Legal Obstacles to the Use of Gold Clauses):
Be it enacted … That the joint resolution of June 5, 1933,… is hereby repealed, and nothing shall prohibit any contractual provision which gives the obligee the right to require payment by the obligor in gold, in gold coin, or in an amount of currency measured by the value of gold or gold coins.
Action has not yet been taken to modify or abrogate the Joint Resolution.
The attitude of the U.S. Treasury is probably based on the decisions of the U.S. Supreme Court in Guaranty Trust Co. of New York v. Henwood153 and Bethlehem Steel Co. v. Zurich General Accident & Liability Ins. Co. Ltd.154 In the Henwood case the petitioners claimed payment in Netherlands guilders under bonds that gave the holders a right to payment in New York of a stated amount of U.S. dollars in gold coin of the United States and an option of payment in various other countries, including the Netherlands, of the equivalent in the currency of the country selected at a stated rate of exchange. The court held that the obligations were subject to the law of the United States, the Joint Resolution applied to the option, and the obligation could be discharged dollar for dollar in current legal tender of the United States. The court rejected the argument, which the minority accepted, that each promise to pay in a particular currency was severable from the promises to pay in the other currencies, and that the promises to pay in currencies other than the U.S. dollar were not tied to gold. The Bethlehem case involved substantially the same obligations as those in the Henwood case, but some other facts were different. The bonds had been offered abroad as well as in the United States, and the holders were foreign corporations, some of whose holdings had been purchased abroad. The court held that these differences did not justify a decision that the Joint Resolution did not apply.
The decisions have been strongly criticized by various experts on the ground that the Joint Resolution did not invalidate promises to pay foreign currency. The resolution should not have this effect merely because such promises are added to a promise to pay gold dollars. These experts have contended that in any event the decisions do not apply when the options contain no promise to pay gold dollars, and even more obviously do not apply if there is no promise to pay dollars in any form.155
The Henwood and Bethlehem cases, as the critics have pointed out, involved promises to pay in gold dollars. The Eurco is a unit of account, and it does not in itself prescribe the currencies of payment. The Secretary of the U.S. Treasury does not seem to have suggested that the Joint Resolution might apply to the Eurco because the Eurco calls for payment in U.S. dollars. On the contrary, he noted that European currencies were the means of payment in the bonds in which the Eurco had been employed as a unit of account. In the first bond issue denominated in Eurcos, which was offered on behalf of the eib and to which reference has been made earlier in this pamphlet, the U.S. dollar was the currency of subscription and one of the prescribed means of payment. The bonds were payable in any of the nine currencies composing the Eurco or in U.S. dollars in Luxembourg or in nine specified cities in the member states of the Communities. The holder could choose the currency of payment, and if he failed to exercise his option, the principal paying agent had a similar option.
If the courts in the United States were to hold that the Eurco is inconsistent with the Joint Resolution, it is not obvious that the SDR as a unit of account in private contracts could be distinguished from the Eurco. A further difficulty is that the SDR is defined by the present Articles in terms of a quantity of gold and therefore might appear to be a gold clause within the meaning of the Joint Resolution.156 Contracting parties might be able to avoid this difficulty by adopting a unit defined not as the SDR but as a basket of the amounts of currencies composing the SDR at the date of the contract, and by agreeing to maintain this unit as a “fixed” unit until after the amendment of the Articles, which will eliminate the definition of the SDR in terms of gold. Thereafter, the unit could be the SDR of the Fund, valued according to the method of valuation adopted by the Fund from time to time.
If the experts who have criticized the two decisions of the U.S. Supreme Court are correct, the difficulty posed by a multiple-currency clause might be avoided by not providing for payment in U.S. dollars.157 The parties might agree on payment in other currencies.158 Another approach might be agreement that the obligation was to pay the various amounts of the currencies in the basket, including the U.S. dollar. The obligee would then be entitled to a fixed amount of U.S. dollars and fixed amounts of 15 other currencies. The obligation could be discharged dollar for dollar to the extent of the dollar component, and in the same nominal amounts of the other currencies as was prescribed or in their value in U.S. dollars if proceedings were brought to enforce the claim to payment in courts in the United States. It is not obvious that the courts would refuse to enforce claims formulated in this way on the ground that they were inconsistent with the Joint Resolution. The practical approach adopted by courts in other countries might induce courts in the United States to give a restrictive interpretation to the Joint Resolution now that the U.S. dollar is floating, although it must be recognized that hitherto the courts have tended to give a broad application to the resolution.159
The Federal Reserve Bank of New York requested the Chase Manhattan Bank to delay initiation of the services in New York involving the use of the SDR as a unit while the services were being studied. An official of Chase is reported to have said that Chase knew of no legal reason why it could not proceed with the services.160 The problem is not clarified by the final paragraph of the U.S. Treasury’s statement, which notes that “this area of the law is subject to varying legal interpretations and, as in other cases of statutory construction, the final arbiter must be the courts.”161