The Press TUESDAY, JULY 4, 1972. Communist financial orthodoxy

Press, Volume CXII, Issue 32959, 4 July 1972, Page 12

The Press TUESDAY, JULY 4, 1972. Communist financial orthodoxy

The recent revaluations of the Chinese yuan and the Russian rouble must have caused some misgivings among the theoreticians in the two Communist camps. Tinkering with the exchange rates is the kind of activity usually associated with Jewish financiers and predatory capitalists rather than with people’s democratic republics. No doubt the trade commissars in Peking and Moscow soon found the ideologically acceptable argument to assuage the doubts of their masters: to allow the yuan and the rouble to float with the pound would be to accept a de facto devaluation of the yuan and the rouble in relation to the United States dollar—an intolerable admission of the inferiority of the Communist economy. The Chinese must have felt the effects of the floating pound immediately. Unlike the Russians, they have actively, though quietly, fostered exports of consumer goods to the foreign capitalists to acquire hard currency for the country’s import needs. Most of this trade is done through Hong Kong, where the Bank of China handles the bulk of the Communist regime’s exchange transactions in a thoroughly efficient manner. Within days of the June 23 decision in London to allow the pound to float, the Bank of China would have reported to Peking that, while sales of exports in sterling were returning the same amount as previously, dollar earnings had been reduced.

The Russian revaluation was announced two days after the Chinese revaluation. Once the yuan had been revalued there can have been little argument in the Kremlin about the correct course of action: it would never do to allow the value of the rouble to be seen to have slipped in relation to the yuan. Both in Russia and in China the consequences of the revaluation on existing international trade contracts will have been examined. A contract between a Russian export corporation and an English firm, for instance, will customarily be expressed in roubles, not pounds. The Russians will get more pounds for their exports than previously—but no more dollars for their exports to the United States. The incident may reassure the diehards in the Kremlin and in the Great Hall of the People in Peking that their currency is not subject to the upsets which can be expected to plague the currencies of the capitalist world. But nowadays any country which boasts of its stable currency is likely to be asked: “Stable in relation to what?” Even the United States dollar was devalued in relation to gold last year. Any economic adviser in Moscow or Peking who suggests that the value of his country’s currency should be pegged in relation to gold would be roundly condemned by the ideologists. “ Tie our currency to “ gold, the symbol of capitalism? The very idea! ” Yet the suspicion remains that the only true believers in monetary gold these days are the Communists.