MONETARY PLAN

New Zealand Herald, Volume 80, Issue 24554, 9 April 1943, Page 4

MONETARY PLAN

INTERNATIONAL TRADE BRITISH PROPOSALS CLEARING UNION SYSTEM BASIS FOK CURRENCIESBy Telegraph—Press Associalion —Copyright LONDON, April 7 The Government- White Paper on "Proposals for an International Clearing Union" recalls the speech of the Chancellor of the Exchequer, Sir KingsJey Wood, in the House of Commons on February 2, when he spoke of the post-war need for "international monetary mechanism which would serve the requirements of international trade." Described by the Government as "a preliminary contribution to the solution of one of the problems of international economic co-operation after the war." the plan in the White Paper has been prepared by the Treasury in consultation with other departments and after informal discussions with oiiicials of the Governments of the Dominions ami India and others. It has been communicated to representatives of the other United Nations. Payments Between Nations The chief purposes of the plan are to provide a generally acceptable means of payment between the nations, to .ensure that any alterations in the exchange values of national currencies are made as a result of orderly, international procedure and not by unilateral action, also to relieve from excessive strain any nation suffering from temporary difficulty in meeting its obligations to make payments abroad, while at the same time subjecting it to gradual pressure toward restoring a position of balance.

,All these purposes are subsidiary to the main purpose—the promotion of steady expansion and How of international trade. The White Paper proposal is to establish an international clearing union based on international bank money called, it is suggested, "bancor," fixed, but not unalterably, in terms of gold and accepted as the equivalent of gold by all members of the union for the purpose of settling international balances. Credits and Debits Central banks of all member States -—also non-members —would keep accounts with the union, through which they would settle exchange balances at par value as defined in terms of "bancor." Countries having favourable balance payments with the rest of the world would have a credit account with the union, and those having an unfavourable balance would have a debit account.

The White Paper continues: "The idea underlying such a union is simple •—to generalise the essential principle of banking as it is exhibited within any closed system. The principle is a necessary equality of credits and debits If credits can only be transferred within it the union can never be in difficulty in honouring cheques drawn upon it. Its sole task is to see that the members keep the rules and that advances made to each are prudent and advisable for the union as a whole." Some of the minor provisions of the plan are that all the Allied nations will be invited to become original members. Governing boards shall be appointed by the Governments of mem bet States, those with small quotas in convenient political or geographic groups Responsibility in Management

Member States will agree between themselves on the initial values of their own currencies in terms of "bancor." The value of "bancor" shall be defined initially in terms of gold. A quota based, perhaps, on imports and exports, shall determine responsibility in the management of the union and the right to enjoy the union's credit facilities.

Member States shall agree to accept payment of currency balances due from other members by transfer of "bancor'' in the union's books. The governing hoard shall be entitled to ask and receive from each member relevant statistical and other information. Non-mem-ber States keeping clearing accounts ■with the union would have no right to overdrafts and no say in the management.

The White Paper points out that the clearing union might become the pivot of the future economic government of the world.

ECONOMIC PROGRESS ESSENTIAL FACTOR , FINANCIAL CO-OPERATION "An essential condition to durable peace and to economic and social progress of all peoples is a system of international economic co-operation: this has been fairly generally recognised for some time," said Professor H. Belshaw, professor of economics at Auckland University College, when asked yesterday to comment on the cabled descriptions of the British and American currency stabilisation proposals. "Intimate financial co-operation is an essential part of any such system," he added. "The purposes would appear to be to provide assistance to any country which has difficulty in making overseas payments, avoid competitive exchange depreciation, facilitate clearing of international accounts, and lead to greater stability in international

prices. "One renson why <he world depression was of such severity was that 110 such international currency arrangement, existed —though Lord Keynes proposed a similar arrangement during the depression—-and in eonser|iieneo the separate countries endeavoured to improve their own position by unilateral action. Usually this action took the form of impediments to trade, and either immediately or later was expressed in such things as barter agreements, exchange clearing agreements and import and exchange control. "Germany was already using this method in order to establish economic hegemony in Europe and ensure supplies of materials required for war. International action of the type proposed would remove incentives to such restrictive measures and open up the possibility of so controlling international prices as considerably to dampen down fluctuations of business —booms and slumps. "Although the British and American plans are based on gold, this must not be taken to mean a return to the gold standard. Gold is merely a basis in the form of a generally acceptable medium. The main danger in the proposal would result from one country's assuming a dominant position, as, for example, the United States under the American plan. "Even if such dominance were used in-the general interest, the psychological reactions would he bad, since every particular policy might readily be suspect as being motivated by the interests of the dominant Power..ln my own view, control must be broadly based if such a danger is to be removed." 1 rofessor Belshaw said there had been no prior indication that the two plans were in preparation in Britain a? i States. The fact that they had appeared simultaneously suggested that each Government had had