HC Deb 09 April 1940 vol 359 cc459-63
49. Mr. Vernon Bartlett

asked the Chancellor of the Exchequer whether he is aware that the fall of sterling is creating a very unfavourable impression in neutral countries; and what steps does he propose to take to reinforce exchange restrictions and to block foreign balances?

50 and 51. Mr. Loftus

asked the Chancellor of the Exchequer (1) whether he is aware that there is a free market on the London Stock Exchange for the sale by aliens of sterling securities, and that during recent weeks large quantities of such securities have been sold there by American owners who have converted the sterling payments received into dollars on the unofficial exchange in New York; thereby causing a heavy fall in the sterling exchange; and what steps he is taking to prevent such action;

(2)whether he is aware that portions of the sterling payments made by the Treasury to British owners of dollar securities have been utilised by the recipients in purchasing large quantities of international sterling securities, such as British-American tobacco shares, gold mining and oil shares from American owners who have converted the sterling payments into dollars; and what steps is he taking to prevent the purpose of requisitioning dollar securities being thereby nullified?

52. Mr. Boothby

asked the Chancellor of the Exchequer whether he will now place an absolute embargo upon the withdrawal of funds from this country by aliens living abroad?

55. Mr. G. Strauss

asked the Chancellor of the Exchequer whether he will take steps to bring about a recovery in the value of free sterling in America, in view of the fact that the free franc and the Canadian dollar have fallen in sympathy with free sterling?

63. Miss Wilkinson

asked the Chancellor of the Exchequer whether he has any statement to make in regard to the present low position of sterling on the New York exchange, and as to what effect this will have on Anglo-American trade relations?

64. Pethick-Lawrence

asked the Chancellor of the Exchequer whether he has any estimate of the total amounts held by foreign residents in the form of sterling balances; and whether he pro poses to take any steps to block the disposal of these in order that he may prevent further depreciation of sterling in the unofficial market?

68 and 69. Mr. John Wilmot

asked the Chancellor of the Exchequer (1) whether he has any estimates as to the proportion that the turnover in the unofficial market in sterling during March bore to transactions in the official market;

(2) in view of the fact that recent depreciation of the free sterling rate tends to cause a rise in the price level and of the cost of living in this country, what steps he intends to take to reverse the fall of sterling by tightening the exchange restrictions?

The Chancellor of the Exchequer (Sir John Simon)

The matters referred to in these Questions are technical and it is difficult to compress an answer within ordinary limits. I have prepared a considered statement, and, with the leave of hon. Members, I will circulate it in the Official Report.

Miss Wilkinson

Is that method of answering all these questions a way of avoiding inconvenient Supplementary Questions?

Sir J. Simon

No, it has nothing to do with that at all.

Mr. Craven-Ellis

Is my right hon. Friend aware that there is a growing feeling in the country that the Treasury are not using their full powers in regard to foreign exchange?

Sir J. Simon

May I invite my hon. Friend to consider the statement which I am circulating?

Mr. Kirkwood

Is the right hon. Gentleman aware that the feeling in the country is that he is not taking enough from the rich?

Sir H. Williams

Is it not the case that all the monetary reformers up to now have been in favour of the depression of the pound sterling because they wanted inflation?

Following is the statement:

I am glad to have this opportunity of making a statement which will, I hope, serve to correct some of the misapprehensions current, both at home and abroad, on this subject.

The recent fall in the unofficial rate for sterling on foreign markets was in no way a sign of financial weakness or difficulties on the part of this country. It was the natural result of the recent regulation providing that exports of tin, rubber and certain other commodities must be paid for in foreign currencies or in sterling obtained from authorised dealers in exchange for foreign currencies. The object of the regulation was to ensure that these exports contribute directly to our foreign exchange resources. The fall in the quotation was the incidental result of tightening up the Exchange Control.

Sterling is the basic currency of vast areas in many parts of the world and the problem of controlling it is thereby rendered both more important and more difficult. The House will appreciate that this fall is limited to a very small proportion of sterling, namely, that held by such foreigners as choose to dispose of it to another foreigner at the rate current on foreign markets. Our policy is to maintain the purchasing power of sterling for the national needs and in pursuit of that policy we have arranged that the vast bulk of transactions between sterling and other currencies shall be conducted in London through our control and at our official rates. That may have the incidental result that any outside market for sterling becomes a very thin market and a thin market is always erratic and fluctuating. If our general policy is sound, as I am convinced that it is, we must not be deflected from it by secondary considerations. By far the greater part of sterling transactions are carried through at the official rate. I am satisfied that the proportion of transactions carried through outside the official market is a very small one.

The proportion becomes very much smaller still if we allow for the fact that a very great proportion of our purchases are made from the sterling and franc using areas and do not involve the intervention of foreign currencies at all. Any suggestion that the rates quoted in the free market are important in the cost of living in this country cannot be sustained.

I think that it would be a wrong policy altogether to intervene in support of sterling in the free market.

As regards the question whether we should block sterling assets belonging to foreigners, a great deal of foreign money has been invested in this country in securities, or entrusted to our banking system because sterling is, and remains, a currency in international use. At the outbreak of war, we assumed complete control over the international uses to which the money belonging to our own people might be put, but we left the foreigner—by which I mean people living outside the sterling area—free to dispose of his assets, here or elsewhere. That decision was in accord with the principles and traditions on which, in this market, foreigners have always felt able to rely. We were, of course, under no obligation to convert such foreign holdings into gold or into foreign currencies at the expense of our reserves: every foreign holder was aware that he held sterling and nothing else. But we could have prevented him from taking his money or his securities home. To do this, we should have had to make it impossible for him to deliver to another foreign buyer. In other words, we should have had to put an embargo upon the use of his money or his securities. On a balanced review of all the considerations we chose not to do so, exposing ourselves no doubt thereby to the risk that some foreign holders would use their freedom in order to dispose of their sterling assets. That has not happened to any substantial extent and it would not be to our advantage to take the action suggested in the direction of blocking these assets.

Sterling, I maintain, is good to hold; and I believe that this opinion is spreading in neutral countries. The best way of ensuring that it will continue to spread is to maintain, for ourselves and others, so far as we can, the essential liberties which, in the financial and every other field, are traditional in this country. I have considered this matter very carefully and am satisfied that our policy is in the best interests of this country—the test by which, of course, all our policy has to be settled.