CITY DIARY
CHRISTOPHER FILDES
Returning from Ireland refreshed in every sense—oh, that admirable stout, with so strong a head that I could play noughts and crosses on the top—I find that the OECD has been there, too. Its observers, though for more austere reasons than mine, are no less cheerful. Faster rate of advance resumed—rise in demand led by exports—balance of payments swings into sur- plus—exports up 11 per cent, representing half the increase in total final demand—exports for this year expected to rise by 10 per cent—de- mand policy examined and considered to be right: how is it done?
In retrospect, what seems to have turned the trick was a singularly well-timed bank strike. It ran for three months in the summer of 1966, and was expected to paralyse commerce. In fact, promissory notes on cigarette packets and old envelopes circulated freely, and with the aid of a few sacks of money imported from Belfast, all went swimmingly. Economists will like it as a working model of what credit means. When the Central Bank finally caught up with what was happening. it found that credit had increased by nearly twice as much as its 5 per cent guide- line. Since in July the decision was taken to go over to a policy of expansion, nothing could have been better.
The devaluation of the Irish pound was in- evitable, since more than half Ireland's trade is with the United Kingdom. But the OECD ob- servers expect it to work out well, stimulating the United Kingdom trade in both directions— as both countries seek to have imports from non-devaluing sources—and showing a balance of advantage for Ireland's other trade. In par- ticular, though the OECD report does not specific- ally say so, it should give the first useful chance of exports on a reasonable scale to Europe. Per- haps we were hasty in allowing Ireland its inde- pendence: I wonder if they would let us back in?
I am curious to know what the Chancellor in- tended when he included in the Finance Bill a clause about sterling Certificates of Deposit. Hitherto the exchange control regulations have made a market in sterling CDS impracticable: now this obstacle is to be removed. But is this just an enabling provision—it is tucked away at the back of the Bill, next to the national lot- tery clause—or does the Chancellor actively want to add cps to our repertory of banking devices?
The CD, I should say, is at the moment to be found only in dollars: it was pioneered by the First National City Bank of New York. In effect, it is a document certifying that a given sum of money is held by a bank for such-and- such a period. It is, therefore, a security; and a market in dollar CDS has grown up in London, with discount houses and us and Canadian banks and brokers participating. Now I gather that in New York the CD has made the authori- ties' task of credit control very much more diffi- cult. Controls applied elsewhere have apparently stimulated the CD market, rather as the bank credit squeezes of the 1950s set London bor- rowers looking for other forms of credit and so revived the bill market. On these grounds, the Bank of England used to be thought to oppose sterling CDS. But now the view seems to be that, if sterling cos would be a useful addition to the City's services, then it is up to the authorities to make their arrangements fit in. Discussions are already in progress among the participants—banks of every kind, and the dis- count houses—to establish what form the market will take.
One prod that I wish the Chancellor would give the Bank is in the direction of allowing a London market in dollar bills of exchange. So far the Bank has held out against it, as reducing the international importance of sterling. But if I read the Chancellor's mind, that to him would be not a threat but a promise.
By the way, I find that the Finance Bill draughtsmen are, alas, right with me. I had hoped that, if you renounced your investment income, you would escape the 'special charge. But among the small print is a provision that. if you renounced after 19 March in the hope of escaping the charge, you will be taxed on the income just the same. But anyone who re- nounced before then—for instance, to increase the value of his shares by leaving more money in the company—is all right. As a levy on wealth, this special charge is less ingenious and far less equitable than it looks.
'One of the scientist's principal difficulties in getting to grips with economics and sociology in particular and sociology in general is that he has been trained to regard gambling situations as avoidable.. . . To risk resources or lives on a fifty-fifty proposition looks little short of im- moral. The trouble is that in social affairs to delay decisions is usually expensive at best or, at worst, impossible.'
Duncan Davies, who is deputy chairman of ices Mond Division, and his la colleague Callum McCarthy, have been struck by the special difficulty that a scientist has in adapting his thought to economic terms. All businessmen without a grounding in economics have this difficulty, but the scientist's is exceptional, in that economics does not seem to work in the way he has come to expect from a discipline. Dr Davies and Mr McCarthy. themselves both chemists by training, have tried to approach economics by what they call the back door, by treating it as 'a science of decision-taking'; and their new book, introduction to Technological Economics, is the result.
I quarrel with the title, which suggests a specialised field of study, whereas this is an ex- cellent book for the non-specialist. The large class of those who have unsuccessfully tried to understand what is meant by Discounted Cash Flow will find a clear exposition. And the style is crisp—in Western society, about the only resources independent of previous saving are air and blackberries.'
Previous page
