The Press SATURDAY, MAY 10, 1969. Exchange Rates

Press, Volume CIX, Issue 31984, 10 May 1969, Page 12

The Press SATURDAY, MAY 10, 1969. Exchange Rates

General de Gaulle, who scornfully refused to devalue the franc last year, will be succeeded next month by a new president The German Minister of Finance (Dr Strauss) said last week that other countries were pressing for a revaluation of the deutschmark by 8 or 10 per cent—and that he would not oppose this if it were one of several changes made in a general realignment of currencies. It is scarcely surprising that speculative dealings in the world’s major currencies have risen sharply in the last two weeks. ’ Mr Pompidou, whose election as President of France now seems to be assured, has not taken any firm stand in public on the question of devaluation. But it would be good politics as welk as sound economics for him to approve a devaluation soon after his installation—as, indeed, General de Gaulle did. Much —perhaps most—of the opprobrium attaching to the act of devaluation would fall on his predecessor. It would obviously suit the French if the Germans could be persuaded to revalue at the same time, thus adding to the incentive: to French exporters and further discouraging French importers. An early revaluation of the mark, however, would not suit the German politicians unless it were “ part “of a general realignment of currencies”; the industrial unrest likely to follow an unilateral revaluation might well affect the Federal elections in September.

This week’s massive movements of “ hot money ” may not give Hie French time to install their new president, let alone give the Germans time to elect their new Government And other currencies—notably sterling and the United States dollar—have been infected by the virus of speculation: in Westminster and in Washington the authorities must be just as anxious as those in Paris and in Bonn to see the speculation ended. But early action can scarcely be concerted action; and German hopes for an orderly realignment might be disappointed. The first of a series of exchange rate moves is likely to be the devaluation of the franc, perhaps at file same time as the revaluation of the mark. Other alterations, if any, will depend on the new exchange rates of francs and marks.

In general terms, the larger the German revaluation the smaller and the fewer will be the consequent alterations in other exchange rates. A German revaluation of no less than 8 per cent and a French devaluation of no more than 10 per cent would probably enable the British to retain the present exchange rate for sterling in relation to other currencies. If sterling had to be devalued, however, Britain’s trading partners would need to re-examine their exchange rates. The New Zealand dollar could probably withstand a 10 per cent devaluation of sterling provided Australia and other sterling countries held their exchange rates. Some of these uncertainties may be removed this week-end, when, the European central'bankers hold their regular monthly meeting in Basle.