What the money words mean

Press, Volume CXI, Issue 32797, 23 December 1971, Page 13

What the money words mean

(By Associated Press correspondent,

LAURENCE STUNTZ,

through N.ZP.A.)

NEW YORK, Dec. 22. To understand the money stories these days, you have to know a whole new language, full of such words as “crawling peg” and “dirty float.”

Just to make it easier to keep up to date, here are the real meanings of some of the fianancial words going around now.

Group of Ten—these are the main industrial countries in the world outside of the Communist bloc. They include Japan, Canada, and the United States and the principal European countries. They also have most of the voting power in the International Monetary Fund —I.M.F. for short. This is an organisation of all the countries in the world to regulate financial arrangements between them and to chide countries which are spending more than they earn. The I.M.F. also distributes the Special Drawing Rights—also known as S.D.R.S or paper gold. This is a sort of

loan given by the I.M.F. to countries so that they can settle their debts to each other.

World trade expanding, there were not enough United States dollars and gold in existence to settle all the debts.

S.D.R.’s are like using a cheque instead of a $lO note to pay a debt.

If a country still can’t pay its debts it is supposed to devalue—this means to admit officially that your currency is not worth as much as it had been. A devalued United States dollar cannot buy as many marks. But the mark will buy more United States dollars, so when the dollar is devalued, the mark is revalued —which means it is worth more. Revalued currency is good for a country’s prestige but bad for its trade.

It takes more devalued United States dollars to buy enough marks for a Volkswagen, so fewer Volkswagens are sold in the United States. If .the reduction in VW sales is great enough, Germany might come up with a

balance of trade deficit—which means she doesn’t get enough United States dollars from VW sales to pay for the United States computers she buys. However, even if she has a deficit in the balance of trade, she might still have a surplus in her balance of payments—this can be in surplus because it includes the money a country earns from insurance or the tourist business or shipping as well as the income from its exports. So if insurance premiums to Lloyds of London are more than the trade deficit, England has a surplus in her payments balance.

This pleases the Bank of England, which is that country’s central bank—something most countries have to issue their paper money and guard their gold. The United States nearest approach to it is the Federal Reserve System. ' Central banks take actions which would be improper for governments, such as indulging in a “dirty float”—the word for a central bank buying or selling foreign currency to affect its value.

A clean float is when a currency has no fixed value in terms of gold or United States dollars but is allowed to be valued by the law of supply and demand. A modification of the float is the “crawling peg”—currencies which have a fixed value are said to be pegged. But if the value ischanged by a little bit, up or down depending on the supply and-de-mand, it is said to have the "crawling peg." Instead of that, a country may choose, as France did a two-tier system which means that what France pays for a United States dollar depends on why you are selling it. If you are selling United States dollars to pay for exports, you get more francs than if you are selling United States dollars to buy stock in French companies. This is a long way from the simplicities of the gold standard—which means you could turn- in your United States dollars or francs or sterling and get real gold. This system is now obsolete except in Switzerland and such places as Dubai.