FOREIGN EXCHANGE

Waikato Independent, Volume XLIV, Issue 107, 29 September 1947, Page 3

FOREIGN EXCHANGE

MATTER OF REGULATIONS? WHERE DID THEY ORIGINATE? It is commonly alleged in British countries that the scheme for regulating the foreign exchanges, as agreed upon at Bretton Woods, is American.in origin, in essence, and in its partiality. It is just as vehemently alleged in the American Press that the set-up is either Canadian or or even both. Most comment of this nature can be written off as blind prejudice. One source of misunderstanding is the fact that the quotas to be supplied by member countries are assessed in terms of American dollars of the vveight and fineness current at the time of the conference in 1944. To obtain a stable pattern of exchange rates, clearly some common denominator was and is necessary. The mythical unit, the "Unitas," was employed for the purpose, the "Unitas" being defined as equivalent to 10 American dollars. It could just as easily have been expressed in terms of any other country stable in itself. A very clear indication of the merits of membership can be derived from what the American 'Press called the "Battle of the Quotas," which arose because each expert saw it to be his duty to secure as large a quota for his own country as possible. Quite obviously, the experts were united in their opinions on this score. The only major adjustment was secured by the Soviet delegate, who managed to secure a quota which

made the U.S.S.R. a very close third to Britain—notwithstanding that, the U.S.S.R. has not yet ratified the agreements—perhaps because they are dissatisfied with a mere third place! i It is also asserted that the clause, requiring member countries to seek permission from the fund to adjust their exchange rates up or down more than 10 per cent., could cause , inconvenience and even hardship.

Against this, it is well to remember, that the necessity for a new, rate of exchange arises from unusual movements in the balance of payments, and the first function of the fund is to prevent the troubles that arise from unbalanced payments, and assistance from the fund is worth much more than the ineffectual efforts of any one isolated nation. Scarce Currency

Furthermore, the agreement includes . full power to forestall dislocations and maladjustments, by the simple expedient of declaring any currency a "scarce currency." Because the U.S.A. is the major creditor country in the world, and because the demand for dollars to purchase American exports is never-ending, the American dollar is constantly in jeopardy of being declared a scarce currency; with a consequent freezing of American exports, i Oh balance, the monetary agreements would always tend to favour the smaller, and economically weaker countries, with a view to building up vhe economic strength of all memfcers. Self-interest alone ought to be sufficient reason for ratification' by any country, and the necessity to be there with another vote on the side of the sterling bloc is another cogent reason for New Zealand to ratify on the basis of being accepted as a foundation member.

Amything short of friendly cooperation in trade spells chaos to our sensitive twentieth-century economy. The best results, for the world as a whole can come from the collective bargaining made possible by memgership in the World Monetary Fund and its co-partner the Bank for Reconstruction and Development. France has already secured half the loan asked for, with the possibility of receiving the other half when 'skill in utilising the first half.is Clearly demonstrated, and the waiting list includes Luxemburg, Belgium, Poland, Czechoslovakia, etc. Either loans are not available to these countries through entirely independent channels, or the terms of repayment not be so generous. * Short-term advances from the fund, and long-term loans from the World Bank of Reconstruction and Development assure members of generous terms, and obviate the problem of securing a sufficiently favourable balance of repayments to redeem cither the advance or the loan at maturity date, or even to obtain renewals where advisable.