4 JANUARY 1957, Page 24

The Sterling Area

By JOHN WOOD

THE remarkable thing about the sterling area is that it survives. Unable more years than not to pay its way, lurching from one crisis to the next, the fashionable comment to make is that it is only a matter of time before it all breaks up. Yet it is at this moment by far the most important international currency mechanism the world has. And during the last few years it has financed a steadily 'increasing share of world trade. Out- standing balances between all countries in Europe, together with their dependent overseas territories, the Russian bloc, China, as well as the sterling area, in fact virtually the whole non- dollar world, have, during the last year or so, come to be settled in sterling.

For the sterling area system to have achieved this eminence after the knocks it took during the war, and the fax greater damage it suffered from the inept policies of the decade after the war, argues an extraordinary reserve of toughness and resilience. Recall for a moment the main short- comings of British policy since 1945. By fumbling the problem of the accumulated sterling balances we delayed for years the restoration of triangular trade which gives the area stability and cohesion. Throughout the last decade financial policy has been based on the patently untrue assumption that there was a greater danger of deflation than of inflation, and the conversion of our politicians on this score is not yet complete. Though one hears less surprise expressed now when the over- seas account goes into the red (thus weakening the currency) after the going has been too easy at home, this is not so much because the appre- ciation of obvious truths is any keener, but simply because we are so much more accustomed to. being in the red. In times of acute capital shortage, we clung to cheap money, and destroyed what remained of our ability to lend money over- seas, which was our chief contribution to the sterling system. Even now it seems scarcely credible that we devalued sterling in 1949 with the Bank rate at 2 per cent., and that it remained at 2 per cent. for a further two years. Similar antics in other sterling countries were accom- panied, as here, by grand spending sprees and the usual over-ambitious development plans. The sterling club, in short, has been made as unattrac- tive as possible for members—a high subscrip- tion, no credit, few facilities, and watch how you spend your dollars.

The main reason for this appalling mismanage- ment of the sterling area has been ignorance in and out of Whitehall of how it works. And since no adequate analysis of its problems has yet been produced by a Commonwealth author it seems that not only ignorance, but also indifference, is to blame. Happily, however, American authors arc more aware of what is needed. The first systematic study of sterling-area trade was written by the staff of the Economic Co-operation Administration four years ago. Now three new * STERLING-DOLLAR DIPLOMACY. By Richard N. Gardner. (O.U.P., 42s.) STERLING: Its Meaning in World Finance. By Judd Polk. (Harper, 27s. 6d.) THE STERLING AREA IN THE POST-WAR WORLEL By Philip W. Bell. (O.U.P., 63s.) books on different aspects of sterling are avail- able, all by American authors.* The books vary in scope and method. The most fascinating is Mr. Gardner's careful post-mortem of the Anglo-American negotiations during and immediately after the war, which failed eventually to reconstruct a satisfactory multilateral trade system. Written, as the author puts it, from a `mid- Atlantic' position, the book is as understanding of British difficulties as it is critical of Amercian shortcomings. The tragic results of the Ameri- cans' obsession with Imperial Preference and the issue of discrimination, which have turned out to matter so little amidst all the other 'postwar problems, are well brought out. Mr. Gardner's investigation tracks down three evildoers- Economism, Universalism and Legalism. These are the fallacy that economic policy can be made in a political vacuum; that universal institutions are to be preferred to more limited arrangements; and that international problems can be solved simply by drafting a code of formal principles. What Mr. Gardner has to say is wise indeed and will be read attentively by all officials taking part in any future international economic nego- tiations. Mr. Polk tackles the story of sterling on a much broader scale, starting with William the Con- queror and taking it into 1955. He concludes, a little hesitantly, that sterling is 'basically viable,' and the practical tone of his book should clear away much of the misunderstanding which exists, particularly in America, about the value of the sterling system today.

Mr. Bell's book is a study of the internal working of the sterling system. The emphasis is on the monetary mechanism inside each country, its relation to the whole, and its ability to adjust itself to the disturbances of the post-war years. A great deal of statistical and other information is made available about member countries. But since the author has deliberately excluded the question of the area's general relationship with the dollar world, there is no thread to help the reader along. On the crucial problem of the cohesion of the area, the discussion suffers because, as in Mr. Polk's book, insufficient allow- ance is made for the exceptional character of the years under scrutiny, and for the mistakes which were made. It is true of the sterling area, as it is true of the British economy alone, that its problems have not been unmanageable, they have simply been badly managed. Anything which helps, as these books do, to a better understanding on both sides of the Atlantic of what these prob- lems are and how they may be overcome is welcome.