Floating currencies
Sir: If there has been a tendency in the past to turn fixed exchange rates into a kind of virility symbol, are you not in danger of falling into the same trap with your repeated advocacy (August 25) that not only the pound but all currencies should be permanently floated?
A floating currency is, of course, no more an essential attribute of national independence, let alone a guarantee of sound economic management, than its equivalent of a continually and infinitely variable tariff barrier. Insofar as it enables or encourages governments to turn their back on other essential aspects of economic management, such as the maintenance of a sound internal currency, and makes inflation more rather than less difficult to control, the final state may actually be worse than the first.
Carried to its logical extreme, the principle of universal floating currencies demands the dismantling of all existing monetary unions, such as our own in the United Kingdom. We should have to introduce, or re-introduce separate currencies for England, Scotland, Wales and Northern Ireland, if not for each individual region, all floating against each other in a permanent state of flux. Just imagine the added difficulties of a ' British ' government in these circumstances trying to balance its budget or pursuing any kind of regional policy.
We may have reservations about some of the existing policies of the Community which we are about to enter; if so, we shall be able, jointly with others, to seek modifications of those policies in due course. But let us not be so cynical as to suppose that the Community's preference for fixed parities, at least internally, rests on mere considerations of national advantage. The benefits of economic integration, which redound to all, may not be achieved through monetary integration, but they can hardly be advanced without it.
Nor is Britain's present position calculated to strengthen her influence in the monetary councils of the world at large. She cannot, at one and the same time, urge the need for rationalising the existing system of international reserve assets and, by keeping her payments in balance on a tide of floating exchange rates, declare her own reserves redundant. The pound's Smithsonian parity in terms of the dollar — which, incidentally, was fixed at $2.6057; not $2.48 — may not be sacrosanct, but talk about dollar or any other reserves without some parity is meaningless.
W. Grey
12 Arden Road, Finchley, London N3
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