The two problems are related in two

The two problems are related in two ways. In the first place, as for a bank, income account difficulties are a major source of loss of confidence in the ability of the u.s. to honor its promise to sell gold at $35 an ounce. The fact that the u.s. has in effect been having to borrow abroad in order to achieve balance on current account is a major reason why holders of dollars are interested in converting them into gold or other currencies. In the second place, the fixed price of gold is the device we have adopted for pegging another set of prices- the price of the dollar in terms of foreign currencies- and flows of gold are the device we have adopted for resolving ex ante discrepancies in the balance of payments.