Dollar under scrutiny

Press, Volume CX, Issue 32461, 23 November 1970, Page 15

Dollar under scrutiny

fN.Z.P.A.-Reater—Copyright? WASHINGTON, November-22. Recent suggestions by European monetary officials for a devaluation of the American dollar have brought the sacrosanct subject into the open in the United States for the first time for several years. In the last month or so, a Bank for International Settlements economist. Mr Milton Gilbert, a Bank of Italy economist, Mr Rinaldo Ossola, and a senior, unidentified, member of the European Economic ComRtmity commission have all spoken of a devaluation of the currency, from its present gold parity of SUS3S a fine ounce, as a real possibility. The • conservative weekly financial newspaper, “Barrons,” this week devoted its entire front-page to an article which said that the Nixon Administration's expansionary economic goal, of aanevmg full emnloyment bv ““ to be the dollar’s last hurrah.” Advocates of realignment The “Barrons” article was sub-headed: "The United States must not count on its creditors forebearance,” and it concluded with the sentence: “One day they mav decide to stop being suckers.” The svndicated columnist, Joseoh Kraft wrote, at the same time, that the basic

pressure for protectionist trade-policies in the United States would be alleviated by "a realignment of currencies, whereby the Japanese yen and West German mark are increased in value, relative to the dollar.” The “Washington Post's?* financial editor (Mr Hobart Rowen) had previously referred to the Common Market official’s remarks on dollar parity, saying: "The troublesome thing about the newest mention of dollardevaluation, is that it comes from a responsible European who doesn’t advocate such a course, but considers that it might just happen.” The comments of the official concerned were made to a small group of financial editors in Washington last week, and subsequently drew some heavy fire from the Nixon Administration, which steadfastly discounts the possibility of a reduction in the official exchange-value of the dollar. Case for status quo In spite of the deterioration in the American balance of payments and reserves, at least two strong arguments support the Government’s case for rejecting the possibility of a devaluation. First: The $35 an oz parity was set by an Act of Congress in J 934, and can only be changed with Congressional approval. Not only would this approval be unlikely to go through, but debate on the question would inspire an untenable bout of speculatior on the dollar in foreign exchange markets.

Second: The key role of the dollar in the monetary system, and the massive power of the American economy, would probably force all hut a few European countries (and possibly Japan) to devalue in harmony with the United States. ; The colossal technical implications of such a worldwide currency adjustment could be avoided, if the few “surplus” countries competing with the dollar were to raise their exchange-rates, ; Government officials in Washi ington believe.