The kind bankers of Basle MONEY
NICHOLAS DAVENPORT
Central bankers must be the most boring people in the world to engage in conversation. Priestley once said to me that journalists were the worst because they were always afraid that if they said anything original another journalist might overhear and put it in his column. But central bankers are no better. They deal in mysteries and their lips are always sealed. They make a mystery .of gold and =regard themselves as the silent priesthood of its rites; the 'swaps' and credits which now go `. with the gold mystery are kept veiled from the populace. They talk in cliches and avoid any disclosure of the real truth behind the creaking international mone- tary -system. Why any -journalist bothered to. go 'to- Basle where the members of the Bank for International Settlements are gathered as I write passes my comprehension. Of all their stories, I have read the'silliest was the headline. 'World banked seeking an alternative to the' MP.' The last thing-these bankers want is -Io : have some alternative to the IMF system suddenly thrust upon their. Such an upset could briug a -hold-up ofs..WOrld trade. They arecer-- tainly going tri do -their'best to keep the system going—however rickety, -rusty, jerky and pafehed-up-its machinery may be. You will not find -these central bankers. running into the streets Of Basle and demanding revolution.
It- was clear !from the annual report of- the ins' and from the speech of its president, Dr Jelle Zijlstra; -Governor -of the Dutch national bank, that they. regarded even the introduction - of.-4he °Special. Drawing Rights-L-the modest - revolution .which: has finally been. agreed for:- the-11.AF system—with-serne scepticism. .They-. welcome SDR as 'an .effective addition to inter- -• national liquidity' but warn that if the official gold reserves do not grow in the future (they have lately been declining) and if the stock of dollars is restricted by,.: fears of its convertibility- the.allocations'of son would have to be so large as: to appear 'excessive, to whatever group of countries:: happened to be in surplus.'
These bankers were also sceptical about the effectiveness of the measures taken to right the American balance of Payments. But they were less censorious about Britain—and were even cautiously optimistic about our economic future. They reviewed the long-drawn-out crisis of the £ and the years of ineffective action or inaction which preceded the 1967 devaluation. This devaluation, unlike its predecessor of 1949, they said, was accompanied by extensive inter- national cooperation. While the major indus- trial countries maintained their existing ex- change parities, a stand-by credit of $1,400 million was granted by the IMF and additional central bank facilities subsequently brought the total defence for the £ up to $4,000 million. It certainly needed it. Mr Jenkins announced last week that he had taken up the $1,400 million DAP stand-by credit. Presumably he is using it to repay central bank credits which would then be 'reconstituted.' Has the recent weakness of the sterling exchange brought on by the French troubles cost the reserves more or less than $1,400 million?
We are all aware of the present predicament of sterling. In addition to the constant threat of the erosion of the sterling balances—the switch- ing of the less stable holders of sterling into hard currencies or gold—there has been the appalling deficit.on our current trading account which immediately after devaluation rose to about £80 million a month. This is now being reduced and Dr Zijlstra in his speech at Basle has reassured us that the central bankers are ready to help Britain over the sterling balances 'provided that the uic balance of payments is reversed from deficit to surplus without too much delay.' This is the most helpful statement we have heard from a central banker for years. I feel that we are at last becoming recognised and liked as an honest struggling debtor nation. Our long agony on the TMF cross of gold has melted the bankers' hearts. •
While I am always ready to acknowledge the change of heart in the world's central bankers I would not like to slight-the importance of the visit to -Bonn last week of our. Financial Secre- tary,avtr.Harold Lever. Havingibeen a financial expert-himself Mr Lever can talk their language andfnb -doubt used all his conSiderable charm to tell-them how bankers with enormous surplus funds should behave towards honest struggling debtors. Dr Schiller, the economic minister, and Herr Strauss, the finance minister, have ob- viously been embarrassed by the mounting surplus. on the German balance of payments and were willing- to listen to Mr Lever's pro- posals., These were probably limited to the extension of. the old Basle 'group arrangement' to-mover the conversion of the more volatile sterling balances of the old: sterling area which may be put at around £500-million. (The total, excluding the IMF holdings, is £4,000 million of which the sterling area countries account for £2,545 million.)
We_have already made an arrangement with Hong Kong to guarantee up to halftheir official sterling reserves, and Kuwait has long had special rights of conversion into dollars. Given time Mr Lever could probably settle the funding or conversion of the sterling balances of the moribund sterling area but this is not really the vital problem. It is the monthly deficit on the trading account which is robbing our reserves of gold and dollars. If Mr Jenkins is not satisfied with the rate of improvement in the trading returns, that is, if imports continue to be excessive, he should use the power of his present credit squeeze to cut the importers down. Let them deposit cash at the bank on any future import order. Let them be made to go to the Bank of England for any future cover- ing of forward exchange. Import 'leads' should be prohibited.
Great Britain is not the only country in exchange trouble. France has also made a draw- ing at the IMF, namely $745 million bringing the total up to $2,145 million. This has left the IMF short of its stock-in-trade of hard cur- rencies and makes it necessary for the Group of Ten at their next meeting to enlarge the General Arrangement to Borrow. When the Group of Ten meet at the Hague this week France will no doubt take the opportunity to suggest that as the IMF cupboard is getting bare it would ease the situation if the official price of gold were raised. Certainly this would oil the IMF machinery and make it easier for the whole gold exchange system to work. But the Americans will have none of it. Mr Alfred Hayes, the president of the Federal Reserve Bank of New York, has just told a Swiss audience: 'I firmly reject proposals which in one way or another would lead to a higher price of gold.' The Americans-are determined to keep the official price of gold at $35—in spite of the current rise on the free market to $44 an ounce —until they are ready, on the basis of a balanced international account, to demonetise gold and make the world accept a paper dollar as its money for settling international balances. As the French are no longer in the position to' cause much trouble the American view' will probably- prevail. And the ttaF's rickety machinery will have to go on creaking without its oil.
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