Convertibility

Press, Volume XC, Issue 27415, 30 July 1954, Page 10

Convertibility

r The annual report of the Inter- , national Monetary Fund, extracts ■ from which were printed in the cable news on Tuesday, sums up its very encouraging review of international trade in the conclusion that a^(oget he r , the conditions for convertibility and the expansion of multilateral trade have been more progressively and actively prespared during the last year than at any time since the fund was “established”. In the last few months these “preparations” seem to have gained in pace and urgency; and together with numerous apparently significant statements by the financial spokesmen of European governments, they have been taken to mean that further important advances towards convertibility, if not a dramatic plunge into full convertibility, are imminent in Europe and the sterling area. This belief has been encouraged by the clear evidence that several Continental countries, which have been no less successful than the sterling area in strengthening their currencies in the last two years, are now eager to force the pace rather than follow reluctantly and a little hesitantly the lead set by Britain as the banker of the sterling area. ( Before the recent meeting in Lon- ' don of Finance Ministers from the countries belonging to the Organisation for European Economic Cooperation (0.E.E.C.), which was attended also by observers from the United States and Canada, there were rumours that the British Government was about to abandon ' its policy of “ hastening slowly ” in ' favour of the “ sudden plunge ” into ] convertibility that it considered and ' rejected last year. This belief was 1 so strong that the “Manchester ! “ Guardian ”, which cannot be < accused of any lack of enthusiasm ! for freer trade, was moved to 'ask ' whether sufficient consideration had ! yet been given to the fundamental , problems that will face all countries ' when their currencies are made freely convertible. In the event, the London conference dispelled any fears—or hopes ' —of immediate decisive developments; and none may be expected ’ before the annual meeting of the : International Monetary Fund and i the next session of signatories to the : General Agreement on Tariffs and : Trade in the closing months of the ; year. But the London conference i was of the utmost importance to the i

preparation of further moves to convertibility, however they are timed. It is known that the delegates spent much time considering the mechanics of convertibility. They agreed upon further measures to liberalise intra-European trade, to discourage such international malpractices as export incentives, and to reduce still further trade

discrimination in general and against the dollar in particular. The conference left unresolved, however, one question on which Britain differed fairly sharply from the Continental countries—the future of the organs of European co-operation, which have achieved so much and upon which Europe has come to rely heavily. The Continental delegations are understood to have urged at the conference that O.E.E.C. and the European Payments Union should be continued, in one form or another, after the major European currencies become convertible. Britain, on the other hand, saw no reason why trade and payments in the convertibility era should not be conducted through the international organisations set up for the purpose —G.A.T.T. and the I.M.F.—after a suitable overhaul of their rules and procedures. The conference agreed to refer to the Ministers’ deputies the examination of the possibility of a European successor to E.P.U., which would seem to represent a British concession to Continental opinion. This question by itself could greatly delay the further and final steps to convertibility, especially as it now appears to be agreed that such steps should be carefully concerted by all the European countries concerned. The “ Financial “ Times ”, which seems to have been well informed about the business of the closed sessions of the conference, came to the conclusion that nothing dramatic could be expected in the near future.

Indeed [said the paperl it is possible that “convertibility” is something of a will-o’-the-wisp. Much emphasis is now being laid on the difficulty of taking the “ final ” step. At the same time, however, sterling (for example) is in fact being made almost every day more widely available, both as a means of financing international trade and as a means for buying certain dollar goods. This suggests that the authorities may in the end prefer to let convertibility creep up unawares. There is a great deal of strategic advantage in shunning the word “convertibility,” with all its implications of risk, while at the same time increasing the freedoms which alone make it meaningful.

The chief objection to letting convertibility “ creep up unawares ’’ is that the countries concerned want the United States to be made vividly aware of the changes effected and contemplated. For it seems that only some dramatic act of faith in free multilateral trade by the outside world will reconcile political and public opinion in America to acceptance of the Randall Commission’s recommendations for more

helpful American policies on foreign trade—which may, indeed, be an indispensable condition for convertibility.