3 OCTOBER 1992, Page 22


Two years on, we have to guess again and get it right


AHampton, Virginia this time of year I like to study the price of martinis in their natural habitat, the east coast of America — which is why, two years ago, I was sucking on an olive in Marblehead, Massachusetts when my bet came up. I had an ecu each way that we would go into the European Exchange Rate Mechanism after the International Monetary Fund meeting, before the Con- servative conference and during the Labour conference. Our exit was less neatly man- aged. In Marblehead, I found myself described as a party-pooper. This was an historic decision, politicians and pundits all over the world were applauding it, big busi- ness loved it and the stock market was delighted, so why wasn't I? It was not a fashionable point of view. In this column (Sterling sails out across the Channel with the gangways down', 13 October 1990) I gave voice to my fears. 'We have embarked [so I wrote] on an attempt to rig the biggest market of all, the foreign exchanges. We must then try to make our economy fit our exchange rate. We are told that this is an essential discipline, or an alternative — as if there were one — to self-discipline. Some people even expect to enjoy it.' Once again we had pinned our fortunes to one exchange rate: 2.95 marks to the pound. Were we doomed to pick the wrong rate too high, when Churchill put us back on the gold standard, too low, when Stafford Cripps devalued? Harold Wincott had warned of it a generation ago, but he won- dered whether there was, or could long remain, such a thing as a right rate. An exchange rate was a price, and prices changed. The ERM, as first devised, allowed them to be changed by agreement — but now that it was the precursor of monetary unity, changes were not meant to happen. (What could not be done by agree- ment has now been done by force). As for its effect on our own economy, I wrote: `To rely on the ERM as an external discipline is to say that we either cannot or will not manage our affairs and would prefer that others acted for us. They will, of course, act for themselves.' So they did, and we took the consequences until, one way or anoth- er, we could take them no longer. Now we are back, economically and politically weakened, with our own decisions to make. Easier said than done. We need a new monetary policy and a new fiscal policy and a rather more credible central bank and an altogether more credible Chancellor. `Three minutes' thought', as A.E. Housman said, 'would suffice to find this out, but thought is irksome, and three minutes is a long time.' How much less irksome it seemed to let the ERM do our thinking for us. We have had to learn that there is no substitute.

Sorry about your money

HERE, I am met with commiserations about the pound. `So sorry', say kind friends, 'about your currency.' I bite my tongue and stop myself saying 'how about yours?' It is an American foible to regard the dollar's weaknesses as someone else's worry. John Connally, when he was Secre- tary of the Treasury, summed it up: 'It's our currency, but your problem.' So it has come as a shock when the countries of Europe try to resolve their own currencies' problems, however ineptly, without waiting to hear what the United States has to say. Where in all this is the economic super-power of George Bush's new world order? Why, when he called the visiting finance minis- ters and central bankers to the White House to hear his own solution, did they respond with polite indifference — all except Helmut Schlesinger of the Bundes- bank, whose indifference was rude? True, it was not much of a solution, rather more of a bundle of old papers hurriedly tied together, and it looked more like an elec- tioneering gesture — World's Money: Bush Acts — than a serious attempt to light the ministers and bankers on their way. All the same, the United State's own Treasury min- isters and central bankers are not used to being treated like so many potted plants on the committee-room window-sill. Such are the penalties of a weak currency. Dr Schlesinger can and does expect the privi- leges of a strong one. The shock will be salutary if it serves to demonstrate that the dollar's problems are American problems, too. So they always must be, as sterling's problems are ours. It is just that they take so much longer to sink in.

Bank of Backhanders

BOTH reports on the Bank of Cocaine and Columbia — Senator Kerrey's in Washing- ton and Lord Bingham's in London — have been delayed in publication, so we have to make do with the indictments against Aga Hassan Abedi, BCCI's founder, and Kamal Adham, his associate, who ran Saudi Ara- bia's intelligence service. Mr Adham has pleaded guilty to concealing BCCI's owner- ship of the largest bank in Washington, and settled for a fine of $105 million. The indictments charge the two men with mak- ing corrupt payments to numerous central bank governors, regulators, finance min- istry officials and international financial bureaucrats — all of them named — right across Africa and Latin America. No doubt they all of them have satisfactory explana- tions, but no wonder this year's IMF atten- dance was down.

Top Sergeant

THIS was Sir Patrick Sergeant's 34th IMF meeting and, so he says, his last. He retired on 30 September as Chairman of i

Euromoney, which when he and I started it was a slim magazine but is now a stout company. We were fortunate to catch the international financial markets (`Euromar- kets' in those days) as they were about to take off. The IMF meeting was always Euromoney's big moment. Sir Patrick put great and justified confidence in the pro- motional efforts of pretty girls. Champagne played its part too. He has always been alert to the influence of human nature in markets. How they will miss his insight and his sense of style.

With a twist

MY QUEST for the two-dollar martini has been foiled, and I fear that we shall never see $2 = f1 again. Even so, having bought my dollars before leaving, I was able to enjoy a $1.95 martini at the Metropolitan Club when the rate in the world outside was $1.71. Nectar.