MANAGED CURRENCY — NEW STYLE Those who delight in currency dialectics will
find pleat:, to ponder in Mr. McKenna's stimulating address to th,2 shareholders of the Midland Bank. Here is Mr. McKenna', advocacy of a managed currency brought right up to date. He reminds us that during the years when foreigners were increasing their balances in London the Exchange Equalisa- tion Account prevented the too rapid rise in the exchange value of sterling by continual purchases of gold, but that when the movement of foreign balances was reversed and heavy sales of sterling took place the Exchange Account again exercised its function of maintaining a fairly steady day-to-day rate for sterling, and sold gold as readily as it had previously bought it. Thus, he says, we see how, with this new and efficient instrument, the Exchange Equalisation Account, in skilful operation, " there need be no conflict between the measures required to cope with large and irre- gular exchange movements and the measures required to maintain an internal monetary policy appropriate to the con- ditions of domestic business and finance." So, in the events of last year, he sees a valuable test of the working of a managed currency under exceptional and very difficult con- ditions.
While one recognises in this thesis Mr. McKenna's old enthusiasm for management in currency affairs, one can also detect in his address this year a fuller realisation of the in- herent limitations of currency control, however skilfully it may be applied. Thus, he frankly admits " that no mone- tary mechanism can of itself perform the numerous and complicated tasks connected with the control of currency and credit." In internal policy, for instance, " it must always be difficult to draw a precise line between the legitimate demands of trade and the illegitimate demands of excessive speculation. Expansion and contraction cannot be regulated by a sort of financial thermostat acting automatically accord- ing to the temperature of the economic body. No automatic system could be devised which would prove sufficiently elastic or adaptable for the purpose." But in admitting all this Mr. McKenna is as firm a believer as ever that today " human skill and judgement must take the place of auto- matism." I agree wholeheartedly with his contention, but am sometimes a little doubtful about the available skill and judgement being all that is required.
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