The Wanganui Chronicle. THURSDAY, MARCH 7, 1946. PLANS FOR CURRENCY STABILISATION

Wanganui Chronicle, Volume 90, Issue 55, 7 March 1946, Page 4

The Wanganui Chronicle. THURSDAY, MARCH 7, 1946. PLANS FOR CURRENCY STABILISATION

'THE loss of confidence which followed upon the competitive depreciations of the values of currencies after the first global war had ended was too severe in its consequences to be ignored by enlightened men. It will be remembered by those who followed the Conference of Versailles, which framed the Peace Treaties, that its deliberations brought much disappointment to Mr John Maynard Keynes. As a result he retired from the delegation which supported Mr. Lloyd George, Britain’s Prime Minister, returned to England and wrote an epoch-making book entitled “The Economic Consequences of the Peace.” That which Keynes predicted came to pass, although these anticipated and foreseen repercussions were delayed until 1929 by the simple process of lavish borrowing and spending. The putting back of the evil day when tlie account had to be faced only aggravated the situation. Some battles are not won by delaying, and the battle of the currencies made the more decisive the defeat for stability and world trade and employment when the defeat was eventually registered. The Great Depression naturally threw the minds of men into the field of enquiry concerning currency management. If the Great Depression registered a breakdown in human relations, then it followed that there must be some way of avoiding another breakdown. At first it was by no means easy to see the wood for the trees, and. it took some time to see even the Great Depression against its causal background. Since that was achieved, however, it became clear that no national currency could be kept in a condition of relative stability by itself alone. The fact that the United States, with a tremendous currency gold reserve and a favourable trade balance on national account, was eventually compelled by circumstances over which it had no control to devalue its own dollar currency proved beyond argument that even the best-backed currency in the world could not remain stable in the face of decay in the currency situations of the rest of the world. If there is no escape, then all countries must act together for their mutual protection in respect to currency stabilisation. When the second global war was drawing to a close the efforts ■were speeded up to find a means of meeting the post-war currency situation. The economists of the world had by then exercised much thought upon the problem and it had become clear that there needed to be some means whereby the cushioning of the shock of adversity in any one country was a first essential. If a country’s immediate adversity could be met in a satisfactory manner without dealing a heavy blow at its exchange position then the chances of recovery would be greater because of the absence of aggravating circumstances. But just as a man may not raise himself higher by pulling at his own shoe-strings, so no country may carry its reserves without having assistance from outside its own immediate resources or by drawing upon accumulated reserves. Working upon this problem Dr. White, of the United States Treasury, and Sir Maynard Keynes, as he had become, produced papers advancing plans for the establishing of an international bank and for the setting up of an international currency. These plans were supplemented by another from Canada, while other plans made further contributions to the pool of ideas on the subject. The White Plan and the Keynes Plan became the leading proposals, but these were not advanced with emphatic advocacy; they were put forward as tentative proposals to form the basis for discussion. As these discussions advanced Keynes entertained doubts as to whether either the White plan or the Keynes plan, or a combination of both of them, would be desirable. Despite the fact that these plans had been well received Keynes was still open-minded and was prepared not only to listen to criticism but himself to advance criticism of his own and other people’s proposals. It is essential for the general understanding of the situation that, this exploratory period should be appreciated. There was no hole-and-corner plan fashioned and then sprung on an unsuspecting world. Everything was done and discussed openly, and it was as a result of this open discussion that the plan as now drawn was. eventually fashioned. The plan is for the setting up of an International Monetary Fund without the establishing of an international currency such as was proposed under the White and Keynes plans. It is important also to appreciate that the International Monetary Fund is designed to maintain a condition of stability in exchanges but not to import a rigidity into the system so that it would, be unresponsive to the economic needs of a country. The raising of an exchange rate, means, for instance, that a pound sterling will purchase not twenty shillings in New Zealand currency but twentyfive shillings. Provided this is a temporary measure and not designed to be a permanent devaluation production costs in New Zealand remain stable, and this Dominion becomes for the time a very favourable market for English buyers to operate in. The result of a rise in the exchange rate where there is a belief that the rate will again fall is a stimulation of exports. As the exports exceed imports, or as the national trading situation rectifies itself, the exchange is brought back to parity. The alteration in exchange rates is, therefore, an instrument which can be employed to maintain long-range stability through the rate’s own flexibility. There is no intention under the International Monetary Fund proposals to take this power of exchange rate manipulation away from the central banks of the countries which become members of the fund.

It should also be emphasised that the fund is to deal with postwar trading and not with the problem of the settlement of wartime debts. The International Monetary Fund is cut right off from the problem of war debts. This may seem to be a very serious omission, but actually the advantages outweigh the disadvantages. The country that, cannot now repay its war debts abroad will not be able to do so after becoming a member of the I.M.F. But the country to which it owes the money can be expected not to pursue one policy in respect to the fund, namely, stabilisation of the currencies, and to demand the repayment of war loans in such a manner as to upset the whole currency situation. Subscription to the I.M^P. by a creditor nation implies that its policy in respect to the foreign loans which it has granted will be harmonious with the objects of the f finds itself. Such a set-up in international currencies promises to provide a situation which will be fat* in advance of that which was presented to the world after the of Global War One. The present proposal may not be capaule of bringing into existence a new heaven and a new earth, but no curacy proposal or set of them is capable of doing that. There is siill n< substitute for a solid clay’s work rightly directed to bring about’ a greater supply of goods that are required for human well-being.