Money To Be Rechannelled

Press, Volume CIX, Issue 31986, 13 May 1969, Page 17

Money To Be Rechannelled

(N.Z.P. A.-Reuter —Copyright)

BASLE, May 12.

Western central bankers are confident that world foreign exchange markets will open on a calmer note today, with hopes that the pressure will be off the French franc and sterling.

This comes after last night's decision by the central bankers after a meeting in Basle to take immediate steps to rechannel the massive flow of “hot money” into West Germany back to its countries of origin. Funds which can be traced back to the countries of origin will be returned in the form of a loan—to the reserves of countries like Britain, France and Belgium, which have had large currency outflows during the recent speculative rush into German marks in the hopes of an upward revaluation. The funds will thus be at the disposal of the loser countries until speculation eases and the central bank debts can be repaid. The decision not to revalue the mark taken by the West German Government last Friday did little immediately to ease international monetary tension.

Sunday's meeting of the central bankers, from West-

ern Europe, the United States, Canada, and Japan, was therefore looked to for some sort of assurance that chaos would not ensue in international monetary markets this week.

A communique issued by the Bank for International Settlements also said that Dr Karl Blessing, president of the West German Federal Bank, told the bankers his Government’s non-revaluation decision would not be altered and told them urgent consideration was being given

to “measures designed to support this decision.”

Activation of the machinery to “recycle” the funds out of Germany does not take account of the vast amount of funds which. entered the country through the Eurodollar market. To penalise the speculators, Dr Blessing was reported to have told the bankers, measures might be introduced to charge foreign holders of marks interest on their deposits in Germany. The mechanics of the recycling operation have not been revealed, although the Bank for International Settlements will play an intermediary role between the gainer and loser countries. The money is not given back to the loser country for good but carries a repayment obligation. European central banking sources estimate the total amount of money flowing into Germany in the last two weeks to be about SUSSOOOm. Concerning the task of tracing the origin of the funds, Dr Blessing told re-

porters: “It is very difficult to identify where the funds coming in through the Eurodollar market came from. But we will do our best.”

The communique was designed to soothe international markets before the West German Cabinet considers on Wednesday further measures to damp down the booming German economy. The bankers believed the explosive speculation against the franc—a logical devaluation target in the present up-set-will erupt again immediately before and during the French Presidential election next month. Some bankers here believe “hot money” will flow from West Germany today and tomorrow, allowing money markets to operate satisfactorily until Wednesday, when Bonn is expected to announce measures to back up its no-revalu-ation decision. Observers said short-term gamblers on a no-revaluation would be recashing their speculative marks for local currency easing immediate strain on the monetary reserves of France, Britain and other deficit countries.

In Bonn, a group of West German economics professors and lecturers today criticised the Government’s decision against an upward revaluation of the mark as a step which would speed world economic disintegration. The statement was signed by more than 60 academics including two of the five “wise men” who report on the State of the economy to the Government each year—Professor Wilhelm Bauer and Professor Herbert Giersch. The chief Government spokesman, Mr Guenter Diehl, said he felt obliged to react immediately by saying that their declaration would “only cause confusion and nourish the highly illusory hopes of the speculators.” The spokesman added: “I therefore declare formally that the Federal Government will stand by its decision against an upward revaluation of the mark.”