An alternative economic policy
Sir: The criticism of Mr Lawson's advocacy of a floating pound made by Mr St John-Stevas (3 March) is, I suggest, ill-founded. He ignores the fact that pegging the exchange rate, at whatever level, necessitates taking, from time to time, measures to maintain it, which can themselves affect the pound's internal purchasing power. Use of Bank rate is probably the most important of these.
It seems reasonable to suppose that, since a floating pound would need no defence by the attraction from time to time of hot money from abroad by means of high interest rates, these would in general tend to be lower than they have been with a fixed exchange. Lower levels of in- terest rates would soon lower the internal price level and so offset the rise in prices that could otherwise result from freeing the pound. The savings of widows and orphans are, I submit, in no way threatened, as Mr St John-Stevas suggests.
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