BRITAIN TO RESTRICT CURRENCY DEALINGS

Press, Volume LXXXIII, Issue 25269, 22 August 1947, Page 7

BRITAIN TO RESTRICT CURRENCY DEALINGS

Free Use Of Sterling Only Outside Dollar Area

“WAR-TIME SYSTEM BUT WITH MORE FREEDOM”

(N.Z. Press Association—Copyright) (Rec. 10 p.m.) LONDON, August 21. “What the whole thing means is that to all the agreements m which Britain has undertaken to allow other countries to spend their sterling anywhere in the world she has added the restriction, ‘except in the dollar area’,” says Reuters financial correspondent, commenting on Britain’s emergency decision to restrict the convertibility of sterling. “She will thus pay dollars only to countries in the dollar area, and must strive to restrict imports by herself and by the sterling area from such countries to the barest essential minimum.

“To all the rest of the world Britain will not supply dollars, except that essential imports of the sterling area rank equally with Britain’s own in their claim on such dollars as Britain has.

“Britain will be prepared to grant a small dollar ration to countries like Denmark, which depend on Britain. “Sterling can be freely spent anywhere in the world outside the dollar area. This reverts to the war-time system, except that it gives overseas holders af sterling rather more freedom than they had during the war, when they could spend it only in the sterling area.

"This new system of having sterling freely spendable in the whole world outside the dollar area—instead of the war-time arrangement of sterling spendable only in the sterling area—is about where Britain would nave arrived by this time if she had had the five years which Bretton Woods allows for introducing full convertibility, instead of only the one year which was imposed on Britain alone by the American loan agreement. “The sterling area remains unchanged. and Britain’s arrangements with the Dominions remain informal. This means that the Dominions remain their own judges of their hard currency requirements: but Britain is convinced that they will strive to reduce them tc the minimum. The agreement by which South Africa sells the bulk of her 1946 and 1947 gold output to Britain specifically stipulates that South Africa is her own judge of her hard currency requirements. “The action taken means that Britain is determined to use her ultimate reserves of gold and dollars, and her bargaining power, to defend sterling and provide so “ar as is possible the minimum essential imports of the sterling area, instead of throwing her last reserves of gold and dollars into the unbridgeable dollar gap. Drastic Trade Measures “Outside the dollar area Britain intends to maintain a complete financial mechanism, including a whole structure of monetary and payment agreements, and she is determined to defend sterling on that basis. . “The Government’s action was regarded in some quarters as the first and most dynamic action to maintain the value of sterling. The crux will be the Government’s imminent actions to restrict dollar - imports and to expand exports. These may have to be very drastic. ‘This British action at last gives meaning to the Paris conference. Britain previously could not integrate the European currencies because it would have entitled them to dip into her gold reserves. “Britain’s action means that the United States Government has approved ‘a temporary element of discrimination.*

“British authorities expect ‘much trouble’ in the hard bargaining that will be necessary to construct a new trading system of the world minus the dollar area.”

Discussing countries, especially the Argentine, who were expected to demand payment in dollars unless they could convert their sterling into dollars. the correspondent says: “Britain will have to pay them dollars from her gold and dollar reserves for Britain’s and the sterling area’s minimum essential imports. Britain above all must try to cut down her imports from such countries. This might well mean sharply cutting British rations, especially the meat ration, and many Government decisions on such matters are expected shortly.

No Devaluation “There will be no devaluation of sterling and no increase in the price of gold. Much depends on the course of world prices. There is still a grave question whether they will break be-

fore sterling does. The dollar exchange rate meanwhile ■ will not be changed. Sterling in the open market would depreciate rapidly, not because of lack of confidence in sterling but because of the world’s huge dollar deficit. However, there is no open market and sterling will not be devalued. There may be a case for doing so later, but not for some years. “Sterling starts its new life to-day in a technically strong position which can only be eased over a period as Britain pays out sterling for imports. All the sterling that could be transferred to New York has been transferred in recent weeks. Anybody who could postpone transferring sterling to London has done so. Many people abroad have oversold sterling and will now have to buy it. Released Balances “The releases from India’s and Iraq’s sterling balances under the recent agreements remain convertible into dollars for essential imports on level terms with any other member of the sterling area. But releases from the Egyptian sterling balance will not be convertible into dollars because Egypt left the sterling area of her own accord. “Canada has been informed about her severance from sterling, and has approved. British-Canadian negotiations have been in progress for the past 48 hours, but could not be completed because it was not safe to use the telephone. Step Seen as Default Describing Dr. Dalton’s announcement as a somersault, the “Financial Times,” in a leading article, says: ‘ Within just over five weeks of the country being told on the most eminent authority that sterling could, as from July 15, withstand the onset of general convertibility and maintain its proud position in the world that confidence has been falsified. It is clear, with the circumstances as they are, i hat general convertibility had to be abandoned; but this reversal of policy would never have been necessary had the Government clearly grasped the factors that must enter into convertibility. “It is, in fact, a default. The country has been put into a position of inability to fulfil obligations to which the Government had pledged it.” “Tire -Times,” in a leading article, says: “By itself Dr. Dalton’s announcement is not an act of policy but a recognition of overwhelming events. The need for a policy much more precise and definite than Mr Morrison’s generalisations of Wednesday is the more underlined.

“If the Government could produce to-morrow a definite and detailed programme, backed by the trade unions, for raising the output of coal at once to a rate of 250,000,000 tons a year, for savings in food imports on the scale now likely to be required, for the economies in capital works needed to free men and resources in sufficient number for the export trades, and for financial remedies touching alf classes of the population and all kind>of expenditure to arrest the pressure of inflationary demands upon materials and labour, they could face with sober confidence both their own people and Mr Snyder.”