BRETTON WOODS AGREEMENTS BILL (Hansard, 14 December 1945)

§ Lieut.-Colonel Dower (Penrith and Cockermouth)
On a point of Order. I understand that the Amendments to this Clause, appearing on the Paper in the names of my hon. Friends and myself, are not to be called. I ask your guidance on this, Major Milner. These Amendments call attention to the fact that, if we oppose this Bill, there is no guarantee that America will give a loan at all, and that is a very serious fact.

§ The Chairman
I advise the hon. Member to await events.

§ Mr. Boothby (Aberdeen and Kincardine, Eastern)
I beg to move, in page 2, line 9, at end, insert: Provided that no payment shall be made to compensate the Fund for a depreciation of the gold value of its holdings of sterling if such depreciation is a result of a devaluation or depreciation of sterling that has taken place without authorisation on the part of the Fund. The purpose of this Amendment is to safeguard the interests of this country in case the Fund should abuse its power by refusing a devaluation of the £, even though it is justified by the existence of a fundamental disequilibrium. One of the great difficulties in this whole business is that there is no indication either in this Bill, or in the Final Act of Bretton Woods, of what does in fact constitute a fundamental disequilibrium. A disequilibrium may arise from a long-term wage trend which disturbs the relationship between the internal and external price level, or from a permanent change: in the conditions of trade, or from a disbalance of trade due to cyclical causes over which we have no control whatsoever. Before withdrawing 805 this Amendment I want to ask the Chancellor of the Exchequer if he can give us any guidance at all as to what principle or theory of value is to be applied, either in fixing parities under the Agreement to which we are now committed, or as to what constitutes a fundamental disequilibrium, upon which the Fund's acceptance or rejection will be predicated. There is no indication of whether wage differentiations, for example, are to be taken into consideration; or whether the far more accurate meter of national incomes, is to be taken into account. Assuming that the latter are to be taken into account, it is quite obvious that national incomes will have to be restored before calculations can be made with any accuracy. Is our import surplus, or the rate of decline of our exports to be a consideration? It would give us some guidance, for we are told absolutely nothing about this "fundamental disequilibrium," and we have no right of appeal from the Fund. Under Clause 2 (1, b) of this Bill, we shall be under an obligation to pay over to the Fund, an additional amount of sterling, in order to make up for the depreciation of sterling in terms of gold or dollars; and since, in case of the withdrawal of this country from the Fund, it would be largely because of the scarcity of our holdings of gold or gold convertible currencies, I think we would be in a very difficult position indeed. I, therefore, suggest, in this Amendment, that in that event we should not be penalised; and the reason I move it is simply for the purpose of safeguarding His Majesty's Government in the event of a difference of opinion between us and the Fund as to what represents a fundamental disequilibrium.

§ The Chancellor of the Exchequer (Mr.Dalton)
This question of fundamental disequilibrium was touched upon in the course of the Debate. I made some reference to it and I will, as the hon. Gentleman has asked me, say a word about it. But before I do that, perhaps I might say that the terms of the Amendment he has put down, would modify an obligation which we must undertake if we sign the Agreement. It is not an Amendment which could be accepted. As I understand it, the purpose of the Amendment would be to enable us to avoid paying anything to the Fund, if an application to depreciate sterling under Article V were rejected, and 806 that it would obviously undermine the authority of the Fund and make nonsense of the accounting that is prescribed on the withdrawal of a Member. We have the right to withdraw. I dealt with this yesterday, and it was not anywhere challenged in the discussion. We have a right to withdraw if the scheme goes thoroughly ill, and it is pointed out that, if we withdraw, we are entitled to get back our subscriptions, and, if this Amendment is put in, it would be difficult to carry out the meaning of the provision. Therefore, I could not accept the Amendment in any event.
The hon. Member has said he has some doubts as to what "fundamental disequilibrium" may mean. So may many people have doubts, and it was for that reason that I indicated in the speech I made when commending the Resolution to the House, that, in order to make this abundantly clear it was the intention of His Majesty's Government on entering the Fund, to seek what we call an interpretative declaration from the Fund in terms which I quoted to the House and which are recorded in cols. 436 and 437 of Hansard for the day before yesterday.
The essence of this thing, is the essence of the interpretative declaration which we shall seek from the Fund immediately on the governing body being constituted. As will be seen by reference to the exact words—which I quoted in order to get them on record—the substances of it is that if there is pressure on our balance of payments, arising from other people not being able to buy our goods, to enable us to balance the payments, as we have to do, in imports from abroad, and if unemployment of a chronic character results, that, in our view, is fundamental disequilibrium.
This thing will have to be hammered out in discussion and in practice. It is impossible to lay down exact and rigid rules, which will cover every possible situation, but the intention of His Majesty's Government being to seek a reasonable mode of decision from the Fund—I repeat—and it is very important to emphasise this—it is not an attitude which we alone would hold in the world. A large number of other countries in the world, including, in particular, our own Dominions, would take the same view that this fundamental disequilibrium is to be interpreted by the Fund. If they do not 807 interpret it, there are successive stages. If we did not get the thing interpreted, there would, eventually, be a state of tension under very definite circumstances, namely that we would walk out. I rate the moral and politicial influences of the British Empire far higher than my hon. Friend does, but this has to be worked out in all . its implications. His Majesty's Government will try to speed up the working-out of the problem by seeking, at an early stage, an interpretation of the declaration I have quoted.

§ Captain Crookshank (Gainsborough)
I would like to be quite clear about who is going to do the interpreting. Is it to be the case that after the Fund has been set up, His Majesty's Government will go before it, and say "We do not quite get the essence of these words and will you —the Fund, all of you—make the interpretation?" Or is it intended that someone should be consulted beforehand?

§ Mr. Dalton
No, Sir, the intention is that the Fund, by which I mean the governing body of the Fund, should be set up and, as I mentioned to the House in the speech to which I have already referred, the United States Government have indicated their intention, as soon as the Fund is set up, themselves to seek an interpretative declaration from the governing body of the Fund. This will become, I think, a fairly common form of proceeding. The interpretative declaration which the United States Government will seek, is not on this point at all, and I do not think I need trouble the Committee with it. It is not a matter of great concern. But first the United States Government, and then the United Kingdom Government, will put forward their views, as to how their particular terms should be interpreted. It will be for the governing body of the Fund to say, I hope, "Yes, we agree that this declaration does express our views." That is the procedure, and we have confirence that it will work.

§ Lieut.-Commander Gurney Braithwaite (Holderness)
Without re-opening one of the main lines of yesterday's Debate, I must say that I think this Amendment, and the reply to which we have just listened from the Chancellor, underline and emphasise the great disadvantage 808 under which hon. Members are working owing to the rushing of this legislation. The right hon. Gentleman has told us that these matters will be hammered out in due course by negotiation. I submit that he would be in a very much stronger position, and so would His Majesty's Government, if these matters of vital importance to the standard of living had been hammered out here in the House of Commons in good time before these arrangements were made. I am not alone in that view. I could submit to the Committee, the evidence of a robust and reliable witness.

§ The Chairman
I do not think this arises on the Amendment.

§ Lieut.-Commander Braithwaite
With great respect, I was endeavouring to address myself to the views put by the Chancellor on the effects this might have on the question of fundamental disequilibrium, one of which concerns the standard of employment. I was about to submit the evidence of a robust and reliable witness who does not quite share the Chancellor's confidence, namely the Secretary of State for Foreign Affairs who, recently as 4th June this year declared himself in these resounding words on this matter: One last word about Bretton Woods. I have never been finally convinced about Bretton Woods."—[OFFICIAL REPORT, 4th June, 1945; Vol. 411, c. 581.]

§ The Chairman
I am sorry, but we are not here to discuss the merits or demerits of Bretton Woods. We are discussing the machinery set out in the Bill, and I must ask hon. Members to confine themselves to the particular Amendment before the Committee.

§ Lieut.-Commander Braithwaite
This paragraph in the Official Report does, in fact, deal with that matter. Of course, if it is out of Order, I will not continue with that argument, but I shall have to confine myself —

§ Mr. Sydney Silverman (Nelson andColne)
On a point of Order. In view of the Ruling that you have just given, Major Milner, might I ask for your Ruling on whether the Amendment itself is in Order? [An Hon. Member: "It has been called."] I know it has been called, but it does not prevent me from raising a point of Order about it. I understand your Ruling to be that the argument of 809 the hon. and gallant Gentleman is not relevant, and is out of Order. If the argument is out of Order, I wonder whether the Amendment which the argument was intended to support is in Order. It appears to me that if the Committee accepted this Amendment, we would be modifying, in an important and material particular, the Agreement which we accepted yesterday. Are we entitled to do that?

§ The Chairman
Let me say frankly that this matter is not free from difficulty. I have thought it right to select this Amendment and to give the hon. Member for East Aberdeen (Mr. Boothby) and any other hon. Member an opportunity to state the case. The hon. and gallant Member was making a general argument, and not a particular one. Having called the Amendment, I must ask hon. Members to confine themselves strictly to it.

§ Mr. Silverman
As I read this Amendment, it amounts to this, that if the Committee accept it, it is a material modification to the Agreement. Arc we entitled to modify the Agreement which we accepted yesterday?

§ Mr. Boothby
On that point of Order. May I submit with great force, or as much force as I am able to command, that the Final Act of Bretton Woods is not an international agreement? It is only a plan, which was discussed by experts and initialled by experts who had no authority to bind their Governments. His Majesty's Government—and certainly the Government of the day—have repeatedly stated in this House.that they were not to be held bound by the Final Act of Bretton Woods, and that our representatives at Bretton Woods were not authorised to act on their behalf. I, Therefore, submit to you that the Bretton Woods Agreement is not an international agreement of a binding character.

§ The Chairman
That question does not arise on the Amendment. There is, however, very considerable force in what the hon. Member for Nelson and Colne (Mr. Silverman) says, but I have, in the exercise of my discretion, thought it right to call the Amendment. I hope the hon. and gallant Gentleman will address himself to it.

§ Lieut.-Commander Braithwaite
I have no desire to plunge you into a deluge of 810 points of Order, Major Milner, and I have far too much respect for your Rulings to question them. I would only ask the Chancellor carefully to study the report of 4th June, 1945, and to take note of the observations of the Secretary of State for Foreign Affairs who did say that he was not satisfied that the machinery of this plan provided sufficient safeguards for the standard of living of the people of this country. As I am debarred from quoting it in full, I shall have to reserve what I may describe as quite a good speech for out of doors, when my audience will have, in the greatest detail, the contradiction of views expressed by the Government Front Bench.

§ Mr. Godfrey Nicholson (Farnham)
I do not think the Committee ought to leave, without comment, the disquieting news that not only is the whole Agreement a pig in a poke, but that almost every section of it represents another pig in a poke. It is indeed a very fertile pig in a poke. Everything is subject to re-interpretation again and again. I hope the Chancellor of the Exchequer will find himself able, if not on this Amendment, at any rate before the Bill has passed from us, to tell us a little more about this machinery of interpretation. I quite see the difficulties. I can see that you cannot have every "t" crossed and "i" dotted before you go into an Agreement of this sort, but there are so many loopholes through which ill-feeling and misunderstanding may seep, that I wish to register my profound uneasiness and anxiety. I wish the Chancellor of the Exchequer would try to clear up this point, and give us some solace in our worry.

§ Mr. Boothby
I must say to the Chancellor of the Exchequer that on this question of fundamental disequilibrium, he has met me very fairly; and, in view of what he has said, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.

§ Lieut.-Colonel Dower (Penrith and Cockermouth)
On a point of Order. Do 1 understand that the Amendment in my name—in page 3, line 13, add: (5) No payment shall be made and no other action shall be taken under this section until the Anglo-American Financial Agreement has been adopted and ratified by the Congress and Senate of the United States of America. 811 —and the new Clause (Provisional duration of Act) are not to be called?

§ The Chairman
I do not propose, as I have indicated, to call the Amendment of the hon. and gallant Gentleman to Clause 2. He can, of course, speak on the Question, "That the Clause stand part of the Bill."

§ Lieut.-Colonel Dower
The only point I wanted to make was this. If this is passed, there is nothing which binds the United States, in fact, to make the loan.

§ The Chairman
That does not seem to me to arise on this Clause. It appears to be a general observation. I must ask the hon. and gallant Member to confine himself to the Question, "That the Clause stand part of the Bill."

§ Lieut.-Colonel Dower
On a point of Order. May I say that it was not possible to debate this very important fact on the Motion which was before the House yesterday?

§ Mr. Dalton
I dealt with the whole matter when I moved the Resolution.
Motion made, and Question proposed, "That the Clause stand part of the Bill."

§ Mr. Boothby
I do not think anybody can possibly deny that on any conceivable rule of Order, the Clause we are now discussing does authorise His Majesty's Government to pay out of the Treasury what may be very substantial sums of money for a very long time to come. I know we cannot criticise the principles of the Bretton Woods Agreement; but there are one or two specific questions that I want to ask the Chancellor with regard to our obligations, and how he proposes to discharge them. What worries me about this proposed expenditure of money in Clause 2 is that it might be all right in normal times, because the Final Act of Bretton Woods is really a kind of thermostat to iron out fluctuations of normal pressure, but it was never intended to function in a chaotic world like that which exists today. What worries a good many of us is that, whereas we had a transitional period of five years in the original Bretton Woods scheme, under the Loan Agreement this has been cut to one year; so that the whole force of the obligation which the House is being asked to assume will come into operation in 12 months' 812 time. I do not believe that the machinery available, or the amount of money now being asked for, can possibly control world fluctuations of the character and type which are likely to take place over the next five years. It is like fixing a thermometer at a certain point, and then putting it in the water and expecting to change the temperature. That just will not happen. There is not enough money either in the Fund, or in what the Chancellor is now asking us to give him, to achieve the object we have in mind.
There are two specific questions I want to ask the right hon. Gentleman relating to our obligations in respect of this money. I am particularly disturbed about the position which may arise —and I think it may very likely happen—if and when we are obliged to withdraw from the Fund. We then have to make substantial payments. If we do exercise our right to withdraw, we have to make these payments either in gold or dollars; and it is quite obvious, I think to every hon. Member, that if we are obliged to withdraw from the Fund it will be because we have practically no gold or dollars left. That is why I am so concerned; and why the I put down the other Amendment, in order to give us a longer period to repay; because we are accepting in this Clause an obligation to repay this money to the Fund, not in sterling but in convertible currency.
The two questions which I wish to put to the Chancellor are these: First, are we bound to maintain our currency at the agreed par value with dollars and, therefore, with gold? If we are—and I think we are—then, of course, it is not very easy to say this is not a gold standard. Under Article IV (4) (b), a member whose monetary authorities, for the settlement of international transactions, in fact buy and sell gold within the limits prescribed by the Fund, shall be "deemed to be fulfilling" the undertaking to outlaw dealings except at par rates in other members' currencies. That may sound, and is, a little complicated; but what it means is this. The monetary authorities in New York will in fact, buy and sell gold within the limits prescribed by the Fund. Therefore, if this Bill is carried on, there will be at least one important market—New York—in which currencies will be able to be freely dealt in at rates which will be illegal in London. It means that there will be a 813 colossal black market in currencies in New York, at rates which will not be allowed to prevail in other financial centres in the world, simply because New York does deal freely in gold. I asked this question specifically of Lord Keynes some months ago, and was never able to get a satisfactory answer. The question must be given some answer some time, because if New York does become an international black market for currencies the whole scheme will break down.
11.45 a.m.
The second question I want to ask the Chancellor relates specifically to our obligations. Article VIII (4) requires each member country to buy balances of its currency held by another member country— presumably at par—if these balances have arisen through current transactions, but not if they have arisen through capital transactions. A sharp distinction is drawn between the two, as my right hon. Friend has pointed out. Article VI permits, but does not enjoin, control of capital movements; and definitely prohibits the use of the Fund's resources to meet a capital outflow. Supposing this country—and it is a situation which is quite likely to arise —is faced simultaneously with a capital outflow and a deficit on current account. As I read the Agreement, we have no right to use the Fund to check the former; but we are obliged to use it right up to the limit of our quota to prevent any depreciation of sterling caused by the deficit on income account, although under Article V (8) we can be subjected to penal charges for doing so.

§ The Chairman
Where in the Bill is Article V (8)? I am afraid the hon. Member is out of Order in this matter.

§ Mr. Boothby
I was merely relating that Article to our general obligations under the Bill, which are causing me anxiety. I have made my point, which was simply to ask the Chancellor of the Exchequer what our obligations are, in this situation. I have asked two questions, which I do not believe the right hon. Gentleman will find it easy to answer.

§ Mr. Boothby
I rise only for the purpose of putting on record the astonishing and melancholy fact that this Bill, which commits this country to one of the most formidable obligations ever undertaken in its history for an interminable period to come, should have been passed through this House without any discussion of the principles underlying the Bretton Woods Agreement as such. I repeat what I said yesterday, that it constitutes a flagrant breach on the part of the Government of undertakings repeatedly given to this House.

§ Lieut.-Colonel Dower
I want to ask, finally, whether the Chancellor of the Exchequer will give an assurance to this House that no action will be taken until this loan is ratified by the State?

§ Mr. Cocks (Broxtowe)
On a point of Order. Is it in Order to take the Committee stage and the Third Reading of the Bill on the same day?

§ The Chairman
It is perfectly in Order. Question put, and agreed to.