BRITISH RESTRICTIONS ON STERLING

Press, Volume LXXXIII, Issue 25270, 23 August 1947, Page 9

BRITISH RESTRICTIONS ON STERLING

Move May Produce Decline In U.S. Prices

“STEP TOWARDS SOLUTION OF WORLD DOLLAR PROBLEM” (N.Z. Press Association—Copyright) (ReC A 9 fh‘ n -?f . LONDON, August 22. . Authontative.jjjuarters in London believe that the Ri-itish decision to restrict the convertibility of sterling marks an : Qf % lbutlon towa rds a solution of the worid dollar Step by to end her own

. J™ Z± nc tl al es ” sa ; s: “ The Brilish move is expected to bring down the dollar value of United States exports by canalising the demand for goods away from the dollar area and by producing a decline in United State? prices. For this A^wUhin <rtnn le AH d that , th ® British . move will be welcomed by the VV ashington Administration, which has shown itself frankly shortage.” measures f or dealing with the world dollar

“The attempt to return, by means of a dollar loan, to the interchange of goods and currencies freely among the nationals of all countries, the objective of the Geneva, has broken down in its first practical test,” says “The Tunes” in a leading article.

Britain and her companions in distress have been unable to deliver the goods, and the so-called ‘dollar gap,’ which reflects the pressing need of most countries, not only Britain, for American goods, has become very much too big to be bridged by the normal processes of exchange, even with the aid of dollar credits.

• “The run on sterling since convertibility into dollars was offered has revealed a fundamental lack of balance in trading relations between countries in the American area and the rest of the world. The abnormal dpmand for American products, and therefore dollars to buy them, is due to the corresponding inability of the countries of Europe and elsewhere, including Britain, to provide those products for themselves.

“Singly or together, the countries now in distress must make themselves self-supporting in the sense of being able to produce or pay for all their needs.” The financial editor of “The Times” says: “The suspension of convertibility is a device to gain time to deal with the fundamental causes of the crisis. Uncertainty will persist for a long time yet. During the next few months sterling will have the support of accumulated demands for sterling, and at the same time will be protected from what the Chancellor of the Exchequer (Dr. Dalton) called ‘abuses’ of the system of convertibility, but sterling is in for a difficult period. “The dollar imports of the sterling area will need to be reduced to a minimum, if the sterling countries have not the goods that the nonsterling countries want, or if the nonsterling countries are not prepared to hold sterling. Not only this country, but nearly --every country, will be reducing its buying. The difficulty of expanding exports in the face of a reduction of buying will be intensified, and cuts in Britain’s imports will probably have to be heavier for the time being.” Danger of Inflation The financial editor of the “Daily Telegraph” says: “Dr. Dalton has yet to provide an answer to the question of what is to be done to curb inflation. The widening gap between imports and ejgiorts has to be met either by curtailing imports or by diverting more British production from the home market to exports. Each move in that direction is inflationary, as money is chasing yet fewer goods. The position can be met only by a fiscal measure to absorb purchasing power, or by an unprecedented jump in the volume of voluntary savings. Dr. Dalton has not shown his hand.”

"‘Dr. Dalton won the Stock Exchange hunt yesterday,” says the financial editor of the “Daily Express.” “The Treasury throughout chased the ‘bears’ and won the first round. At the end of the day ‘Daltons’ were up one point to £B5 10s, and old Consols were up 1| points to £B4 15s. Gamblers who deal in crises have been selling short on gilt-edged stocks for weeks, awaiting the dollar crack. Some of them tried to cash in yesterday morning, but they found the market short of stock and Dr. Dalton standing right behind their tails as a

buyer. leading jobbers at the end of the day were still short.” The financial correspondent of Reuters says: ‘Argentina’s suspension of Ihe issue of exchange permits for imports from all sources is the most striking repercussion so far of sterling inconvertibility. It immediately hits America far more than Britain, since America is sending to Latin America each week about as much as Britain nas been sending each quarter. “London has accepted an authoritative Washington view that sterling ruction might cause the worst upset in world trade since the 1931 slump, and that America would feel it.”

World Reactions , The British United Press gives the following reactions to Britain’s dollar decision:—

New Delhi: Government officials were shocked and staggered. The Indian Cabinet called a special session to discuss the announcement, and it is expected that it will lodge a strong protest. Zurich: The newspaper “Neue Zuercher Zeitung” says the decision is the most serious event for Britain since the defeat of France in 1940. Berlin: The Russian-licensed newspaper Berliner Zeitung” said: “Britain has had a rough fall from her position of world importance. Bankruptcy is outside her door.” Moscow: The Moscow radio quoted Dr. Dalton’s broadcast and the British Broadcasting Corporation, but made no immediate comment. Brussels: Because of the Belgian reserve of dollars, the British decision will not affect Belgium directly, nor affect American exports to Belgium. It is stated that Belgium could always pay in British pounds for Belgian imports from Britain, or even in Belgian irancs, which are accepted as strong currency. Furthermore, it is pointed out that a Belgian and British agreement provides for payment in gold for amounts exceeding £5,000,000. Oslo: The governor of the Bank of Norway (Mr Gunnar Jahn) said that Norway had not made great use of dollar conversion, so the direct consequences of Britain’s decision would not be especially felt in Norway. Paris: French comment on the British decision is cautious. The semiofficial newspaper, “Le Monde,” said: rrance, which has a commercial balance of £50,000,000, would have wished to convert part of this to dollars. Yesterday’s decision will not facilitate this. Britain will have to make a considerable effort if sterling is not to be devalued. We can only nope that Britain will be successful. Our currency could not fail to feel the effect of the devaluation of the £.” The Cairo correspondent of Reuters says an Egyptian financial expert declared that Dr. Dalton’s announcement was bad news for Egypt. It would practically put an end to Egypt’s imports from America. Egypt was not in a position to get dollars except through Britain.