A pressing issue was what to do with the fact that most debt--all of the federal debt, most of the local governments' debt, and a very large proportion of private debts--included gold clauses. That meant that the debtor committed him or herself to paying the dollar equivalent of the gold value of the debt at the time of issuance.
On June 5, 1933, Congress passed a Joint Resolution abrogating the gold clauses in public and private contracts, retroactively.
Gold clauses had a pernicious effect, however, when deflations and devaluation decisions of foreign governments reduced prices and economic activity.
They describe investors' reactions to Roosevelt's gold policies and the abrogation of the gold clause. Investors quickly sued in state and federal courts, demanding that borrowers repay debts with gold coin as required by gold clauses, rather than currency as determined by Congress.
But I do remember quite vividly the first time I met Henry, which was at a conference devoted to the question of gold clauses
, held in November 1973 just at the time when the sale of gold was about to be again made legal in the United States.
Second, due to the gold clauses
that occurred in most bond indentures, coupon and principal payments were stipulated in gold, which helped to integrate these securities into the international markets.
In 1933, the federal government overturned the longstanding legality of "gold clauses
" in contracts which called for payment in gold dollars to protect against "greenback" inflation.
If the gold clauses
had been enforced, the debt burden of borrowers would have increased by the extent of the devaluation, 69 percent.
Executive Order 6111 banned gold exports and called into question gold clauses
in debt contracts.
Roosevelt warned his fellow Americans that "in our progress towards a resumption of work we require two safeguards against a return of the evils of the old order: there must be a strict supervision of all banking and credits and investments, so that there will be an end to speculation with other people's money; and there must be provision for an adequate but sound currency." Nonetheless, Roosevelt proceeded to promote an exceedingly unsound currency--with the seizure of most Americans' gold, devaluation of gold coinage, removal of domestic redemption of Federal Reserve Notes in gold, and the nullification of gold clauses
in both public and private contracts (Vieira 2002: 867-1235).
in contracts might offer some protection for traders.
Previously, a joint resolution of Congress, "Abrogation of the Gold Clauses
," passed June 5, 1933, had voided the gold clauses
in all private and public bonds, mortgages, and contracts (White 1935: 712).