Monetary reform: U.S. plan

Press, Volume CXII, Issue 33033, 28 September 1972, Page 17

Monetary reform: U.S. plan

(N.Z.P.A.-Reuter —Copyright) WASHINGTON, September 27.

The United States Secretary of the Treasury (Mr George Shultz) has outlined American policy on world monetary reform. The programme calls for monetary disciplines to be imposed on countries which remain out of line with international goals, including limiting the accumulation of monetary reserves by nations with large surpluses.

In an address to the annual meeting of the World Bank and the International Monetary Fund, Mr Shultz promised that the United States dollar would later again be made convertible into other reserve assets. It was the suspension of convertibility by President Nixon a year ago that

brought the old monetary arrangements to an end. Many foreign Powers were left with millions of dollars which could not be cashed. Mr Shultz said that he was fully aware that America, and other countries, could not leap into new monetary and trade arrangements without a transitional period, but, he said, after such a transitional period, the United States would be prepared to undertake an obligation to convert official foreign dollar-holdings into other reserve assets as part of a satisfactory system. Mr Shultz listed six principal avenues through which reform of the system should be directed:

A more flexible exchange rate system. A more pivotal role to Special Drawing Rights in the international reserves system. A smoother balance of payments mechanism, with disciplines. Freer trade and investment arrangements.

Reconciliation of trade and monetary reform. Closer harmony between the International Monetary Fund and the General Agreement on Tariffs and Trade.

To ensure that countries would conform to a balanced international monetary regime, Mr Shultz proposed specific sanctions. Nations running persistent balance-of-payments surpluses would lose the right to convert their currency reserves when they passed a certain ceiling if they did not take the necessary steps to bring their currencies into line. Countries running persistent deficits, and refusing to devalue their currencies, would forfeit their access to international borrowing facilities. “I believe disproportionate gains or losses in reserves may be the most equitable and effective single indicator we have to guide the adjustment process,” Mr Shultz said.

In recommending a more flexible exchange-rate process, Mr Shultz listed a

variety of options, including allowing countries to float their currencies in response to market forces. The United States would favour maintaining the present wider currency margins, but on a more uniform basis, he said. This would not exclude monetary blocs from operating narrower bands around their exchange rates. Some nations might seek agreements with their principal trading partners to maintain narrower bilateral margins, he said. He made it clear that he was in favour of using temporary import surcharges where they could be justified. "If trade controls are permitted temporarily, in extreme cases, on •'alance-of-payments grounds, they should be in the form of surcharges or across-the-board taxes,” he said.

Capital controls restricting the free flow of money between countries should be allowed only for a very limited period, and should be universally applied without discrimination by the country concerned.

Mr Shultz did not attempt to set hard-and-fast rules for any financial negotiations, but proposed flexible guidelines for discussion.

His address was regarded as a politically-acceptable document, in that it did not encroach on existing commitments by other nations. Specifically, Mr Shultz did not dwell on the sensitive issues of European monetary integration, or the role, price, and marketability of monetary gold. Mr Shultz’s proposals inspired a mood of optimism among the delegates, many of whom expressed the hope that the main problems of reforming the financial system could be overcome within a year. Some delegates, however, seemed concerned about Mr Schultz’s sanctions proposals. At the third session of the conference today, one of the [principal speakers will be the [French Minister of Finance I (Mr Valery Giscard jd’Estaing), who is likely to [welcome the American prooosals.