STERLING EXCHANGE

Evening Post, Volume CXXX, Issue 51, 28 August 1940, Page 12

STERLING EXCHANGE

EXIT FREE MARKET

NEW YORK CO-OPERATES l

"Evening Post," August 28,

New regulations came into force in i London on July 19 whereby all proceeds from British exports were made available for British purchases abroad. The market for free sterling virtually disappeared, and the use of sterling to bilateral transactions as between the sterling area and each separate outside country was limited. Arrangements were made with the assistance of the United States authorities and banks by which all trade and business between the dollar and sterling areas shall be conducted on the basis of the official rate of exchange. Free sterling can no longer be quoted in New York, which had been the chief market, though present holdings may still be liquidated. Similar arrangements were made with Switzerland.

The procedure set up is explained by the "Manchester Guardian" as follows: Banks in the United States will register with the Bank of England accounts with banks in the United Kingdom. All permitted commercial and current financial transactions between the sterling area and the United States, including-dependencies, will be settled over these accounts. Transfers from a United States registered account may be made only to another United States registered account or to a resident in the sterling area. This means that United States residents will no longer be able to sell sterling to other nationals outside the sterling area. Sterling earned or withdrawn by such currency "outsiders" will therefore no longer be convertible into dollars. Nor ■' will any free sterling be so convertible, since it can be credited to American accounts only from other American accounts. One of the largest sources of supply for the free sterling market will thus be closed, since the main purpose of capital withdrawals had been to obtain dollars. Substantial exemptions were made with regard to sterling, held on United States account. It may be used for all payments in the sterling area except to pay for exports; it may be transferred to other United States residents; and it will be available for the , settlement of commitments in any part of the world which are genuinely outstanding when the new system comes into force.

New regulations were issued for con-

trolling the use of sterling by special payment agreements already made with a number of countries outside the

. sterling area, including Canada and , Newfoundland, the Dutch Empire, Belgian Congo, Sweden, Argentina, and Brazil. All transactions with each of these countries now pass through a special account, and all payments will be-made either way at the official rates of exchange. In other words, the pound will for the time being not circulate freely from one country to another. , This restriction is more objectionable

to the British Control than it can be to anyone else, remarks the "Manchester Guardian," but it was hoped that when the network of special agreements had been completed with all countries outside enemy range some

relaxation might be possible. No payments agreements exist so far with several important countries, including Japan and even Hong Kong. The- Treasury has taken powers to resort to unilateral treatment, if need be, by setting up clearing accounts. For the present there will be several kinds of pounds. There will be sterling area pounds, registered account pounds usable only for transactions with the United States and Switzerland and a variety af clearing pounds of which each is valid only for payments between the sterling area and .one particular country. "That may be sad," so remarks the "Manchester

Guardian," "but it will give us value for money in trading with the outside world."

Free sterling was quoted 4.02 dollars to the £ in New York on August 18.