The Boom in Sterling
AVERY important Person in the City is sa'd to have let fall, like manna from a high place, an ()!;iter dictum on the April-May fluttcr in the foreign exchanges. One hundred millions sterling, this Person said, flowed into the dollar reserves in the last week of April and in the first three days of May. That is only gossip, but a Treasury oiiicial is on record as saying that £32 million came in during the first three days of May, a rate that would make £100 million over ten days, so' the gossip may be right.
The boom was soon over. The Treasury cut it short by disclaiming any intention of allowing sterling to rise above its present ceiling of $2.82. Almost at once the rush was stopped, and the authorities enjoyed an-agreeable sense of power. This time everything was under control--unlike some previous occasions when the tide had been in the opposite direction. They now have a breathing space, while the international speculator is left guessing. His first bet-was a revaluation of sterling. That one went wrong, but it cost him nothing. His resources are intact, and he wants to know what to back next time.
The answer is,not easy, and the speculator must be regretting the days of the straightforward Sir Stafford Cripps, who could be relied upon to stick to his plans whether or not they made sense. Nowadays the British authorities are as tricky as cats, as is witnessed by their handling of the bank rate. From February to May they stuck to 31 per cent., even though it looked alarmingly high compared to New York, or even Paris. In May, when nearly everybody had given up hope and become convinced that the British were diehards for dear money, they changed their tune; they not only reduced the
bank rate to 3 per cent., but they also followed it up by offering 'for sale a stock that carried the Daltonian 2 per cent. label.
i . In commercial circles the rate of interest is a staple subject f for serious conversation. Neatly we align ourselves into two camps, of those who believe that the prevailing rate is too high, and of those who think it too low. The authorities, and the actual rate, ought to be in between, but at the time of • writing they have just completed such a rapid change of front that both camps are out of position. It takes even a speculative banker a certain amount of time to traverse his sights through 180 degrees. Hence the breathing space. But the odds are 1; that it will not last for long. The pound sterling is the most F famous currency in the world, and during the last two years there has been a remarkable change in its standing. which must soon be more fully reflected in the official rules and regulations.
Britain prospers. Production rises, and exports rise. These things have happened before; but normally they are accom- panied by a deterioration in the balance of payments. In the Past we have managed to increase production, but the pro- I' duction has proved to be of things that the world did not want, or did not want at their cost to us in imports. Now we are both producing at high, even record, rates, and making a profit. For our post-war history that is unique.
There have been a number of ' bear ' movements, but they have all been disappointed. A year ago people were saying that the Budget had been too soft, and that the extra production was all going into consumption. At the time the critics spoke the British people had started saving for the first time since the war. Later the critics complained that our exports. although rising, were not rising as fast as the Germans' exports, but now they are rising faster and the Germans, it seems, have collected a number of bad debts. For the moment the ' bears' are out of ammunition, except the old and not to be despised `' things are never so bad as when they appear to be perfect." one of the cleverest bankers in the City told me recently that he was convinced that the boom was near the top. " There are some men." he said, " who always make money: in good times they make more, and in bad times less. There are others Who only make money at the very top of a boom, and these e making money now."
here is only a flicker of rationality in such caution, and . ordinary man cannot be blamed if he forsakes the prophets doom when their case appears so poorly buttreslcd. We getting boom-minded, and we are not alone. A short trip nd the capitals of Western Europe will disclose an almost barrassing enthusiasm for Great Britain and her prospects. our Mr. Butler," they ,say, and there follows a gesture of spect such as is appropriate at the name of a man believed to command the demon Luck.
they can, and do, sell their sterling in New York to buy wheat in Chicago, which costs as many dollars,
The present position, it would seem, cannot last. The British Government plan said it should not last. But at the moment nobody is expecting a move.
Some weeks ago Mr. Butler went to Germany and talked to Dr. Erhardt, who is the second high priest of European finance. Their discussions appeared to be very friendly, and only a few days later Dr. Erhardt said that he expected con- vertibility before the autumn. Mr. Butler followed up by restating his conditions for convertibility, one of which is that the Americans should reduce their tariff, which they have just decided not to do. Despite Erhardt. therefore, convertibility is not at the moment thought to be an early prospect.
But the Americans profess themselves not to be deceived. Mr. Butler, they say, was talking for the record.' They expect him to be along quite soon, asking for a standby credit to guarantee the convertibility of the pound sterling. The implication seems to be that the cred:t will have to be larger to make up for the failure on the tariff front, or at least that the British will have a talking point to this effect.
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