EXCHANGE CONTROL ORDERS (Hansard, 27 November 1947)

§ Colonel Crosthwaite-Eyre (New Forest and Christchurch)
I beg to move: That the Exchange Control (Payments) Order, 1947 (S.R. & O., 1947, No. 2072), dated 25th September, 1947, a copy of which was presented on 20th October, be annulled. There are on the Order Paper three other Prayers which I think it would be convenient to take at the same time. They are to annul the Exchange Control (Blocked Accounts) Order, No. 2038, the Exchange Control (Branches) Order, No. 2039, and the Exchange Control (Specified Currency) Order, No. 2048.

§ Mr. Deputy-Speaker (Sir Robert Young)
I understand that these Prayers are to be taken together.

§ Colonel Crosthwaite-Eyre
Although we have put down four Prayers only the one which I have moved is a matter of major argument. The other three, I think, can be dealt with quite briefly and I am certain that the Financial Secretary, with 2262 that knowledge which he undoubtedly has, can deal with the small points I wish to raise. In the first place, by the Exchange Control (Branches) Order, No. 2039, the Treasury has brought the full force of the Exchange Control Act into being. I would like to ask the Financial Secretary whether he is satisfied that this is a wise thing to do.
Is he satisfied that he is, in fact, serving the best interests of the country by bringing into force the full rigours of the Act, which I think I can safely say is, on all sides of the House, admitted to be right in principle. I think the Financial Secretary will agree with me, that one of the major things we want to do at the moment is to attract capital from hard currency areas into this country. If we can get dollars or other currencies that we require in capital investments into this country—and I hope the Financial Secretary will listen to me—

§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
In order to make 2263 this thing clear I was wondering whether the hon. and gallant Member, when he referred to Order 2039 and to bringing the full rigour of control into operation—or words to that effect—and I are thinking of the same order, which deals with branches.

§ Colonel Crosthwaite-Eyre
I am aware of the order just as well as the Financial Secretary, but one of the things we wish to introduce, as I understand it, as a matter of financial policy, is the capital investment of hard currency countries into the sterling area in the broadest sense, and that is my argument. The phrasing of this order makes it practically impossible for a hard currency country to invest in this country without suffering all the disadvantages of being a soft currency country; and all I am asking him to tell me at the moment, in view of the capital expenditure to which we are committed, particularly in relation to oil, where we are hoping to attract hard currency capital, is whether he thinks this order about branches is a good and sound one? I do not pretend to judge. All I am asking is an explanation of why he has, in fact, taken Section 39 (1, a) from the Exchange Control Act, and translated it literally into this order which—and I may be wrong, and I hope I am—will debar hard currency areas from being willing to allow their subsidiaries or branches to invest in this country. I would ask him to clear up that point.
Similarly, there is a small point about Order No. 2038, the second of the three minor ones. In this country, we have a great number of blocked accounts from hard currency countries. The Treasury has used full powers given to them under the Schedule, paragraph 4 (a) to which this order refers, and I would like to know from the Financial Secretary why any company which has such a blocked account is prohibited from using the money they have in this country to found a subsidiary either in this country or in the sterling area, for this, if allowed again, would attract hard currency capital and would undoubtedly benefit this country. Equally, I would like to know why this ten-year limit has been imposed under the order. What is the magic of ten years? Is that the term which is set to some monetary policy of the Government? Why should it be that they will not allow any sums from hard currency areas, which in 2264 fact this order is chiefly concerned with, to be put into any shares or stock which is redeemable during the next ten years.
Does the Financial Secretary think that will attract exchange from hard currency areas when people know that whatever they do the Government are not going to allow them to invest any shares or stock or any form of investment within the ten-year limit? Does the Financial Secretary consider that this is the way to help us in our present parlous condition?
Then we come to the third order. Here we have a list of specified currencies. Under the Exchange Control Act, any person acquiring currencies specified according to the order of the Treasury must surrender it to an authorised dealer, but if one looks at this list it seems to be completely arbitrary. I am perfectly prepared to admit that the major foreign currencies are included, but once you get beyond those major currencies there seems to be absolutely nothing in the list of either rhyme or reason. In "Trade and Navigation Accounts," which is a good guide to the currencies we need or are short of, it will be seen that two of the major currencies are left out. They are the Spanish group and the Italian group. Neither is included in the Schedule. For the nine months to date, we have an adverse balance in the Spanish group of £14 million, and in the Italian group, an adverse balance of £15 million.
If one takes it slightly further abroad, nearer to the hard currencies, in the case of Chili we have a minus balance of £4 million and, in the case of Paraguay, a minus balance of £1 million. Equally, and to this I would ask the Financial Secretary to give particular attention, in the list which is included, Czechoslovakia is mentioned. With them we have a credit balance of £3 million. If one is to assume—and I think one is justified in doing so under this order—that the whole point is to aggregate to the Treasury those currencies of which we are short, why does this list leave out so many currencies of which we are short and includes currencies of which we have a surplus? So much for the three minor orders.
I now come to the main one, the one which I and my hon. Friends are moving to annul. I will try, to the best of my ability—I cannot do more than that—to realise that there are many things I 2265 may say tonight which, if they are carried too far, or if they are phrased in terms of greater import than that which I shall attach to them, may lead to accusations of irresponsibility. I can only ask the Financial Secretary and his hon. Friends behind him to accept my statement that I will try to be responsible. We are told, and I think rightly, that exports at the moment are the one thing which, within the medium term, can adjust not only our overall balance of payments, but can contribute largely to the solution of our hard currency balance of payments. With that I am in agreement.
The whole point of moving the Prayer on this major order is that we do not feel that the Government appreciate that it is no good exporting goods unless you have in return other goods or some service—in other words, the Government are so busy exporting goods that they do not consider where those goods go to or what, in fact, they return.

§ Mr. Glenvil Hall
Read the order; that is what the order is about.

§ Colonel Crosthwaite-Eyre
I put that quite frankly to the House.

§ Mr. Glenvil Hall
The hon. and gallant Gentleman is wasting our time.

§ Colonel Crosthwaite-Eyre
I have read the order and I challenge it tonight. The Financial Secretary says it is a waste of time. The whole point is—is this order adequate to ensure that our exports are sent to destinations where they will earn for us goods and services in equal respect to that which we have spent on them in this country? I suggest to the Financial Secretary that this the very point he cannot prove and the only reason why we move this Prayer. I must admit that this Order 2072 is couched in such difficult terms that, particularly as regards Paragraph 5, it is left to the discretion of the Bank of England, which in effect means the Treasury; and it is very difficult for any member of the Opposition to evaluate what it means. I hope the Financial Secretary, after the interruptions he has made, will take great care to answer the case I am now putting.
There are two great dangers which face us at the moment. The first is that no old sterling under this payments agreement is used to pay for current transac- 2266 tions. The Chancellor of the Exchequer has admitted that only 50 per cent. of old sterling has been funded and therefore we are entitled to assume—and I use the right hon. Gentleman's words—that 50 per cent. is free. Secondly, long-term import surpluses due to soft currency areas are not transferred under the terms of this agreement to hard currency areas to pay for our exports, and so leave their import surplus from those countries entirely convertible into dollars.
The statements made by the late Chancellor and the present Chancellor of the Exchequer show that there is obviously a leak of at least £300,000,000 per annum between that which we should receive from our trade and that which we actually do. I would ask the Financial Secretary to explain that. I would ask him further to take certain specific examples. Under Order 2072, for payment purposes the countries of the world are divided into specific groups. Paraguay is on its own. There is a blocked group of sterling in Schedule 2. Schedule 3 comprises the convertible groups, and Schedule 4 countries with transferable accounts. Why has he made it possible for all these countries in Schedule 4 to be able to transfer sterling to Schedule 3? Why is it possible for so much sterling, which bears no relation to our import requirements, to be used to offset those exports which we are now making at cost to ourselves?
That is the major problem, and to go into rather more detail, I would like to take the instances of three countries. Let us take Argentina, a country I choose simply because of the adverse balance of trade between it and ourselves. We know, if one looks at the figures, that the adverse balance has been steadily growing. In June it was £5.2 million, in July £9 million, in August £13.3 million, and in September £14 million. In other words, our trade with the Argentine has been steadily deteriorating. Under the Schedule it is perfectly possible for the Argentine to pay in every respect with sterling whatever we export. If one takes the overall balance we see that it is perfectly possible that the sterling surplus accruing to Italy and Spain can be transferred to the Argentine, and that the Argentine can pay with that sterling for whatever we can export to them. Yet according to the Chancellor of the Exchequer, under 2267 Clause 1 (2) of the agreement with the Argentine, they charge us for everything we take from them in convertible sterling? That can only lead to the conclusion that those exports to the Argentine are completely unrequited, and that in fact whatever we are sending abroad to that country is simply being repaid by I.O.U.s
2268 from other countries, and as far as benefiting ourselves or our future or immediate prosperity—