New international monetary regulations proposed

Press, Volume CXIII, Issue 33120, 10 January 1973, Page 13

New international monetary regulations proposed

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R. D. MULDOON)

When President Nixon gave his opening address at the annual meeting of the governors of the International Monetary Fund in Washington, he took a bold step for a President facing an election five weeks later.

His confidence in his re-election was implicit in his statement that his new Administration would not be protectionist but that he expected the same from other member countries. Later that week, the “Committee of 20” had the first of a series of meetings designed to draw up new rules i for regulating international i monetary affairs to supersede j the Bretton Woods rules ! which lasted for 25 years.

The committee of 20 governors of the I.M.F. is the 10 major industrial nations, nine representatives of the developing countries and one representing New Zealand, Australia, and South Africa. As a result of a personal initiative which I took earlier this year. New Zealand, as an "associate,” can speak at these meetings. Our view l tends to coincide with that of the developing countries who also export vulnerable agricultural products. The “deputies,” or officials of the member countries, have had a subsequent meeting; and already the timetable of one year for firm proposals, plus one year for detail and ratification, looks impossible. Currency crises If the whole process of rationalisation now takes three years, as I believe it will, there will be a continuing risk of the kind of currency crisis effecting one or more major currencies such as we have experienced in recent years. After President Nixon’s speech, the American Secretary of the Treasury stated the American position on monetary reform clearly and reasonably. This gave the Committee of 20 a flying start without the necessity to probe for attitudes and reservations.

The principal American attitudes which were likely to be controversial were;

That gold should be replaced by a new reserve currency unit, probably Special Drawing Rights (SDRs) in the IMF. That currency parities should

be more” flexible. That adjustments should be made obligatory on countries in chronic surplus as well as on those in chronic deficit. That trade problems should be considered as part of the negotiations in the Committee of 20 as well as in G.A.T.T.

In spite of the opposition of France and South Africa, the first point will be overwhelmingly supported and New Zealand will certainly

agree to the diminished role of gold. Flexible parities The second point, more flexibility, is also likely to form part of the new rules. But that will not be good for New Zealand. Our bulk export trade and our geographical isolation, with the consequent time lag due to transport, are better served by more day-to-day rigidity in currency relationships.

This has been shown in recent months, and was one of the reasons for relating the value of the New Zealand dollar to the United States dollar last December. I believe that the third point is essential if the new system is to work. But it will be hotly resisted by Japan and Germany. I expect Japan; to up-value the yen soon, now that their election is over; that may be an argument that international pressures can produce these adjustments. The position with Germany is different, however. One of i the weaknesses of the preisent system is that it tends jto make the weaker currencies the subject of sanctions ; while permitting the stronger currencies to get stronger.

Vulnerable countries

One reservation I have is that the vulnerable smaller countries, and we are one, should be excluded. A change in the terms of trade, one or two bad seasons, or protective policies in a major market, can turn our balance of payments around very rapidly, so that additional sanctions would be an unwarranted burden.

It is on trade and protectionism, however, that the crunch will come. The United States wants a diminution in the protectionist attitude of the Common Market, and, to a lesser extent, Japan. The position of Japan is less of a problem, and many Japanese privately admit that Japan’s huge trade surplus with the United States and other factors, give the Americans an irresistible weapon to produce changes in Japanese policy if they choose to use it. U.S. attitude Top American officials have confirmed to me that President Nixon would not agree to a protectionist policy except as a last resort, and in The face of total intransigence I of the Common Market. They admit that New Zealand, in the field of agricultural ex- ' ports to the United States, lis one of the few countries That can properly point the (finger at American policy; their chief target is the common agricultural policy of the E.E.C. which excludes legitimate trade with Europe in American agricultural products.

The Americans say that they are prepared to open their doors to agricultural imports if Europe will do the same. Where Congress, as distinct from the Administration, fits into this is a little difficult to see.

New Zealand applauds such an attitude. But our experience over the years leaves us pessimistic as to the chances of success.

Market for E.E.C. When I was in Europe earlier in 1972, I was distressed to find that many Europeans in politics and central banking, in particular, were taking the view that rhe enlarged European Community would not need America in order to prosper. They spoke of “a market of 3GO million,” and one central banker of international repute of “a market of 900 million,” which presumably included the British Commonwealth. with India. Trade between Western Europe and North America amounts to more than $30,000 million, as against more than $45,000 million between Western Europe and the rest of the world, excluding the Communist Bloc, Japan, Australia and New Zealand. The American trade then, is not inconsiderable. But what is more important is the distortions that would be produced if the United

States were forced back to protectionist, or even isolationist, policies. America is a relatively free market for manufactured goods. If the European and Japanese manufacturers were shut out of that market — and the Nixon surcharge and other measures of August 15, 1971. tended in that direction — they would be in hot competition in third markets around the world. Important aspect In the process, I have no doubt that, among retaliatory measures of all kinds, the shutters would go up on agricultural imports. New Zealand might have access to cheap radio and television sets —which we would not import anyway—and cheap motor cars—which we could not afford. But selling our traditional export products would be harder than ever. While the attitude of the Europeans who have seen American economic dominaance since the Second World War can be understood, it is not the United States, nor Europe, nor Japan, that is important, but the realisation that they all exist in the one world, and that each is too big to be ignored. Signs from the East There are welcome signs that even the Communist countries of Eastern Europe and Asia are coming back into the economic mainstream.

For what influence they may have, it is clear that the commercial and investment bankers and the multinational corporations want no part of this divisive policy. Although it is customary in certain quarters to think of them as totally antisocial, their influence on the various governments in this matter is likely to be good, rather than bad.

The smaller countries, the poorer countries, and New Zealand in particular, must lend support to ensuring that what ultimately comes out of the Committee of 20 is designed to expand world trade and not to divide the world into protectionist, inward-looking communities.