World Payments BANKERS PLANNING TO EASE PROBLEMS

Press, Volume C, Issue 29525, 29 May 1961, Page 10

World Payments BANKERS PLANNING TO EASE PROBLEMS

IBv 'LYNCEUS' oi tne -Economist") (From the ' Economist" Intelligence Unitl

London. May 9. Behind-the-scenes planning to ease problems of world payments is becoming more intensive. Although the April meeting of the economic policy committee of the Organisation for European Economic Cooperation in Paris did not justify rash predictions that it would be a full-scale Western economic conference, the strong delegation sent by the United States indicated the importance that the Kennedy Adminstration attaches to early moves in Western financial co-operation. Meanwhile, Dr Per Jacobsson. the chief of the International Monetary Fund, has revealed that the Fund is working on a concrete plan: and European central bankers have continued to operate their scheme for mutual support. It seems very likely that this will continue to be the basis for a provisional holding operation, pendmg a more permanent scheme which will probably be put before the governors of the International Monetary Fund when they meet in Vienna in the early autumn. Borrowing by I.M.F, Dr. Jacobsson, in an address to the Ecohomic and Social Council of the United Nations, conceded that the time "is now ripe" to replenish the Fund's holdings of particular currencies by borrowing. The Fund has always been empowered to do this, under Article VII of its charter; but the question has assumed practical importance. Only recently Dr. Jocobsson said that possible methods were being studied, but that the most appropriate method seemed to be “a network of stand-by agreements with the main industrial countries under which the Fund will be able to use increased amounts of their currencies, whenever the need for such use would arise as part of a Fund operation.” In this way the Fund could replenish its stock of German marks, for example, in order to permit a drawing by Britain or the United States. The German authorities should be quite happy to make this credit, because it would bear interest; and be gold-guaranteed. This is the plan that has been put forward by Mr E. M. Bernstein, a former official of the International Monetary Fund, as an alternative to the more radical reform proposed by Professor Robert Triffln, of Yale. The Triffln plan provides for the replacement of sterling and the dollar as national reserve currencies by I.M.F. deposits which, in the first instance, would be a minimum of 20 per cent. ' of a country's total reserves. It raises far more practical complications than the Bernstein plan, which is almost in the sphere of central banking technicalities Differing Views One section of opinion in the United States administration favours the bolder Triffln project; and Professor Triffln was taken to Paris as an adviser to the United States delegation. But in Europe the scheme is regarded as far too bold, at least in the meantime—Continental bankers are alarmed even about the obligations they would be required to assume under the modest Bernstein plan; and the feeling in some official quarters in London is that it may be wise to concentrate on the attainable, rather than risk deadlock on the overambitious. It is disappointing that Europe is dragging its feet just when the United States is prepared to leap ahead. This is an exact reversal of the old position. In 1944, when Lord Keynes put forward his own plan for a clearing system,—a plan which remains the basis of all subsequent variants on the theme, including Professor Triffln's,—the Americans threw up their hands in

horror. As they saw it, this was a means for Britain to run a permanent payments deficit at America's expense. Why should America accept pieces of paper called “bancor” rather than solid gold? Now the same sort of arguments are to be heard in Germany and Switzerland. It is always the creditor country that feels least exercised about schemes of this kind. It is also true that the administrative and political difficulties of implementing any such scheme would be formidable, especially if it were felt that the I.M.F. would have to keep its United Nations-type administration Basle Agreement There is no doubt that the easiest arrangement to run is one such as was agreed among European central bankers at Basle in response to the speculation after the revaluation of the mark early in March. Under this scheme, the central banks agreed that when, as a result of exchanges speculation, they accumulate balances in each other’s currencies, they will not, in the usual way, convert these currencies into gold or dollars, but will hold them for the time being. Thus the effect of private sales of exchange is not allowed to work through to official reserves. This scheme has plainly checked the loss of reserves by the Bank of England, though the public have not been told the extent to which the Continental central banks hav" increased their sterling balances. The arrangement is informal and the commitments are certainly not without limit in either quantity or time. The scheme is not, therefore, anything more than a palliative, although the central bankers are to be congratulated for stepping into the breach. But they must think much more before the Vienna gathering. Above all, they should ask themselves whether their institutional conservatism really serves their own best interests at this time.