LAMENT FOR THE MONETARY FUND
By NICHOLAS DAVENPORT ALAS! At the meeting of the International Monetary Fund in New Delhi orthodoxy reigned and from the ministerial 'big guns' assembled came salvo after salvo of blanks. There was much passing of compliments (patting too, on the 'Black' of the World Bank) and much talk of a new `landmark in world monetary
crease by 50 per cent., which means asking sixty-eight member governments to signify, in due course, their lawful approvals. It Will be lucky if the executive directors gather in all the new money before the next annual meeting. i As at April 30 the total of quotas paid in was lust over $9,000 million and the total of gold and dollars held was the equivalent of $2,344 million, of Which $884 million was earmarked against existing stand-by credits. A 50 per cent. increase in the quotas of the US and Canada would bring in a little over $1,500 million—no increase in the small German quota was yet agreed—and if the Other members could pay in the customary 25 per cent. of their subscriptions in gold there would I be another $1,500 million to add to the Fund's I holdings of gold and dollars. But the needy countries have not got so much gold to hand over, and even if they could find $500 million worth they would be diminishing their individual ,,. liquidity merely for the sake of being able to in- I crease. their drawing rights on the Fund ($4 for every $1 of gold and dollars), for the very re- stricted purposes of the Fund's articles. Would this be a sensible thing to do? If the Fund were organised on different lines—for example, on the lines of a super-central bank—and if the execu- tive directors were given wide powers of discretion iheXtending credits for the expansion of trade in the free world it would be a more attractive Proposition. But no attempt was made at this meeting to discuss radical changes in the Fund's constitution and no one even dared to raise the tee _ hnical question of writing up the price of gold in terms of dollars for fear of offending the American delegation. But before long, if the free nations are to meet the economic challenge of the Communist world, some very radical changes In I payments system will have to be made.
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m not trying to decry the services which the International Monetary Fund has rendered to ourselves as well as others. It is functioning as Well as can be expected in the vacuum caused by ( the non-convertibility of most of its members' Currencies. We were glad to receive the $561i mil- lion loan at the time of our exchange crisis in December, 1956, and to get the additional stand- by credit of $7381 million, which, incidentally, out _ , runs e.4. by the end of the year and can be re- newed. t u But the Fund remains the rigid instrument (31- the Bretton Woods currency system of fixed gold parities and under its articles can only extend credits to countries honestly trying to avoid de- preciation in the exchange value of their curren- cies or struggling towards full convertibility. member can only count on drawing automati- O men Y that portion of its quota which can be re- garded as equivalent to its gold subscription. For other drawings it will have to satisfy the directors that it is making `reasonable efforts' to solve its – "change problems and in their last report the directors again remind members that 'drawings cli. stand-bys are intended to support well-balanced aud ,.._, gu[equate programmes aimed at establishing
or maintaining the enduring stability of the cur- rency concerned at a realistic rate of exchange.' It seems that they are still refusing to recognise the fact that most members wish to retain their sovereignties in monetary affairs. it was revealing to see that Mr. Per Jacobsson, the managing direc- tor of the Fund, made it clear in his opening speech that by the promised convertibility of sterling he meant not merely the merging of the official and ,transferable sterling rates but the removal of payments restrictions on the current transactions of sterling-area residents. We are not, it seems, to be allowed to choose how much con- vertibility we want. We are to hand over our monetary sovereignty to Mr. Jacobsson.
Management of an international monetary fund on these rigid, doctrinaire lines is not suited to the dangerous times in which we live. We have just seen a sharp trade recession in the United States and the beginnings of a liquidity problem there which may prevent America from con- tinuing lavish foreign aid indefinitely. We should therefore be thinking of giving the IMF some credit-creating power and, as Mr. Maxwell Stamp so well explains in the October Lloyds Bank Re- view, there. are two simple ways of bringing about this radical change,. Either members must de- posit with the Fund part of their gold and foreign exchange reserves, settling their international accounts by means of drafts on their balances with the Fund; or they must keep their present reserves and agree to accept certificates of indebtedness from the Fund in settlement of their international accounts, treating these certificates as if they were gold. Under the first scheme the Fund could create credit like a bank, but the backing for these credits would be its increased holdings of gold. Under the second the members would leave their credit balances with the Fund, all having agreed to treat the Fund's certificates as gold, so that the Fund would be able to create whatever credit seemed appropriate for the trade situation in the free world. I am all for the second scheme. As Mr. Stamp remarks : 'We should then have an auto- matic means by which countries in balance of payments surplus would lend that surplus not to individual countries but to the world community as a whole.'
If we do not create a payments system along these lines, how on earth can we solve the economic problems which beset the West? Are we content to have an industrial machine in the United States which is from time to time over-producing and running into trouble or to create a surplus capacity in newly-equipped factories in Germany and the UK while the needy and under-developed nations in Asia and Africa cry out for the consumer and capital goods which they cannot finance? If we are to meet the Communist challenge we must find a way by which the surplus wealth of the affluent industrial societies can be used to help the poorer half of the free world.
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