HC Deb 26 January 1948 vol 446 cc668-76
Sir John Anderson

(by Private Notice) asked the Chancellor of the Exchequer whether he has any statement to make on the devaluation of the French franc.

The Chancellor of the Exchequer (Sir Stafford Cripps)

When M. Rene Mayer came to London ten days ago, he informed me of the intentions of the French Government, and the method that they were considering, to adjust the exchange value of the franc. He stated that no decision had been arrived at by the French Government, but that they would be giving their Executive Director on the International Monetary Fund instructions upon the following Monday to lay whatever proposals they finally decided upon before the Board of the Fund. The method, of which he then gave me details, was that which has now been adopted by the French Government. At those interviews with M. Mayer, I emphasised that we were entirely in sympathy with the main objective which the French Government had in view, which was to arrive at a realistic value between the franc and the dollar. We stated that we were prepared to support that objective at the Fund, but that we were not in agreement with the method that they proposed to adopt.

We had long and most friendly discussions upon this matter, and though we were neither of us able to convince the other, we parted with a full understanding of each other's point of view. I then told M. Mayer that we should, of course, be obliged to put forward our own view at the Fund, failing any measure of agreement with the French, and that position he fully understood. The French proposals were duly placed before the Fund a week ago today, and the same arguments were there deployed on both sides as had been used in London.

The House will have it in mind that under the provisions of the Bretton Woods Agreement, of which both ourselves and the French were signatories, members are required to obtain the approval of the Fund for a change in the par value of their currencies, and also undertake not to engage in multiple currency practices except as authorised by the Fund. It was for these reasons, no doubt, that the French applied for the approval of the Fund. From indications as to the course of discussions on the matter by the Fund in Washington, we formed the view that approval was most unlikely to be given unless the French were prepared to consider some modification in their method, and we were most anxious to avoid a situation in which the French application should be disapproved by the Fund.

We, therefore, told the French Government that if they found it possible to accept a straight devaluation of the franc, without the system of a free market; we would do all we could to help them by immediate discussions for expansion of trade between the franc and sterling areas on that basis. The French Government, however, concluded that straight devaluation was, for a number of reasons, impracticable for them. As a next step, we said that we would still agree to work immediately for an expansion of trade and for provision of additional important supplies for the French economy, if they could accept a suggestion, which we understood had been made to them in Washington, that the free market should not apply to the rate for commercial transactions, but should be limited to financial transactions, such as the repatriation of French capital held abroad. The French found themselves unable, for the requirements of their own economic position, to depart from their original method.

As His Majesty's Government were concerned for the possible effect upon Western European economic and political co-operation and stability that might be brought about by the proposal by the French, I flew to Paris on Friday morning for further conversations with the French Government. I repeated to them that we were anxious to help in every way, and that we regarded agreement upon this matter at the Fund as of the utmost importance. I urged them to consider once again the limitation of the free market, such as I have already described. They repeated their objections.

I then made another proposal to them, about which I understand there has been some confusion in Washington. The French Government assured me throughout that the method they were adopting was of a transitory nature. They maintained their adherence to the objective of an exchange system based upon a fixed single rate, as, indeed, is made plain by their public statements. I proposed to them, therefore, that they should seek the approval of the Fund for the method they had preferred, but that this method should be limited to a period of three months, and that it could only be continued beyond the three months if, as a result of the experience gained during its working, the Fund were able to approve its continuance.

In making this proposal, I in no way modified my objection to the principle of the method the French were proposing. Nor could I, of course, assume that the Fund would necessarily approve its application even for this limited period. But, as it was to be a transitory arrangement, and as one of the chief difficulties in discussion was that we and the French took differing views about the effect of this method on existing exchange systems in operation, I thought it might be practicable for both Governments to make it plain to the Fund that they had in mind only an experimental treatment of the problem strictly limited in time. Our discussions were again upon the most friendly basis. M. Schumann, M. Bidault and M. Mayer all took part in these talks, together with their expert advisors. We were, however, unable to convince them that it was possible for them to make the adjustments of their plan that would enable us to support their case at the Fund as we desired to do.

The French Government have as their chief objective the stabilisation of the French economy. Their fiscal and budgetary measures were the first step in this programme. Their next step was to adjust the rate of exchange in order to take into account the rise of prices in France. They regarded it as impracticable, at this stage in the evolution of their economic programme, to determine a new and fixed rate which would be appropriate. Therefore, in their judgment, it was necessary that, for a transitory period, part of the convertible currencies coming to France should find its level through the operation of a free market. They came to the conclusion that if they adopted any of our suggestions, they would be unable to achieve in full measure the results for which they hoped from their present arrangement.

Although all of us agreed upon the extreme importance of working towards a closer economic integration of Western Europe, the judgment of the two sides upon the effect that the French action was likely to have differed. We held the view that the particular methods which they were proposing were of less decisive value for them than they considered, and that the adverse effects upon the relation between the franc and other European currencies which were likely to ensue from their action were greater than they estimated.

In the result, they decided to adopt the method in the form which Monsieur Mayer had first explained to me, despite the disapproval which they were conscious would be registered by the International Monetary Fund. We regard this result as unfortunate, but nevertheless we are as anxious as are the French Government that this difference of opinion should have no adverse effect upon our general relations and co-operation, or in any way militate against our coming together for the purposes announced by my right hon. Friend the Foreign Secretary on Thursday last, and to which I found the warmest response amongst all members of the French Government whom I met.

As I have already stated, the French repeatedly made it clear that the proposals are designed as a transitory measure to meet the urgent needs of the moment, and their objective is a stabilisation of the franc on a fixed uniform rate. Our policy will be twofold, to give any help we can to assist the French Government in reaching their objective of a fixed uniform rate at as early a date as possible, and at the same time to take such measures as may prove necessary in the interval to limit the repercussions on our own currency and the many other currencies in which we are closely interested. I therefore left in Paris some technical staff who will, I hope, be able to work out, in full consultation with the French Government, the measures of precautions which we must be prepared to take here.

I need not point out to the House that this is a matter in which we bear responsibility to the whole of the sterling area, and to all those others who are trading on the basis of sterling, and we must therefore maintain our freedom to take any action which may be found necessary. The new free market for dollars and escudos in Paris will be quite different from the free-exchange markets before the war. The market will be organised through the authorised banks in Paris, and will only be accessible to residents in French territories who wish to buy dollars or escudos for approved purposes. It is not intended to give facilities for the flight of capital, for currency speculation or for arbitrage between one currency and another.

We are certain that the French Government intend to take all possible action to prevent any direct effect of their plans upon the relation of sterling to other currencies, and we do not contemplate taking any action to alter the rate of sterling in relation to other currencies, as we do not believe that this will be rendered necessary or advisable. In any action that we are compelled to take, we shall, of course, exercise the greatest care not to add to the difficulties of our French friends more than might prove absolutely inevitable.

Finally, I wish to emphasise very firmly on behalf of His Majesty's Government that this difference of view will not have any effect whatsoever on our sincere and earnest desire to co-operate with the Government of France to the fullest extent in the economic as well as in the political field.

Sir J. Anderson

While no one, I am sure, would wish to say anything likely to aggravate the difficulties of the situation with which His Majesty's Government have suddenly been confronted, may I ask the right hon. and learned Gentleman whether he can assure the House that he and his advisers have been able to work out the international implications of this decision which our French friends have felt compelled to take, and that all practical measures will be adopted, without delay, to minimise repercussions upon other unconvertible European currencies?

Sir S. Cripps

Yes, Sir, I can give the right hon. Gentleman the assurance that we have gone into this matter very fully. We have prepared all the necessary steps, I hope, and we are in consultation with the French Government today as to how best they can be applied.

Mr. Dalton

May I ask my right hon. and learned Friend—whom I congratulate on the patience and skill with which he has conducted rather difficult discussions—whether he will instruct our representative on the International Monetary Fund to keep closely in touch with the United States representative and others to do everything possible to make sure that this is a purely transitory departure from fixed exchange rates?

Sir S. Cripps

Yes, Sir, we have done our utmost along those lines, and I understand that the International Monetary Fund are still going to try to persuade the French to make it transitory, and not permanent.

Colonel Crosthwaite-Eyre

Will the right hon. and learned Gentleman give us an assurance that the steps contemplated by His Majesty's Government cover the movements particularly of capital from the £1,750 million of uncovenanted sterling balances, and also from the working balances granted by His Majesty's Government to various countries under payments agreements now in force?

Sir S. Cripps

I am not prepared to state this afternoon what precise measures will be taken, but we have all those matters in mind.

Colonel Crosthwaite-Eyre

They are in mind?

Sir S. Cripps


Mr. Norman Smith

Has the Chancellor seen the written statement of the approved purposes for which resident French nationals will be permitted to buy dollars and escudos in the free market?

Sir S. Cripps

I am under the impression that when I left Paris there was not such a written statement, but when the full legislation in connection with this is published, a statement will, no doubt, be there.

Mr. David Eccles

Would the Chancellor agree that the French action really proves that no system of exchange control can hold a currency at a fixed level if the responsible Government cannot prevent inflation and rising costs of production?

Sir S. Cripps

I would not enter into any theoretical discussion at this moment.

Mr. Stokes

Does not this illustrate the futility of the whole of the Bretton Woods scheme, which was based on the availability of various currencies instead of willingness and ability of people to exchange services, raw materials, and goods?

Sir S. Cripps

No, Sir.

Mr. W. Fletcher

Will there be an opportunity for the House to discuss the various steps when they have been worked out?

Sir S. Cripps

Measures of that sort have to be imposed without prior discussion if they are to be of any real value.

Mr. Harold Davies

Will my right hon. and learned Friend explain in simple terms to the average British working people what this really means? [Laughter.] The Opposition may laugh, but this is of fundamental importance to the British people. As I understand it, cheap pounds will be available in Paris at bargain prices, and it will make it more difficult to close the import-export gap. I beg the Government to explain this to the British public.

Sir S. Cripps

I hope that the sequel which my hon. Friend fears will not be that which occurs.

Sir Frank Sanderson

Will the Chancellor reinforce foreign exchange control, and give an assurance that he will take every step possible, no matter how drastic or far-reaching, to conserve the interests of the savings of our people?

Sir S. Cripps

We shall certainly do all we think necessary and desirable to preserve the strength of sterling.

Mr. R. A. Butler

Will the Chancellor give an assurance that besides the technical discussions on this matter which are now taking place in Paris, the Government are pressing ahead, at the same time, with the various talks and processes involved in setting up a Western Union, both political and economic?

Sir S. Cripps

We certainly hope that this will not prevent in any way the going forward of these discussions.

Major Bruce

When my right hon. and learned Friend has worked out the repercussions a little more closely, would he make a further statement to the House?

Sir S. Cripps

If it appears necessary, from the way matters develop, I will certainly consider that.

Colonel Hutchison

In view of the emphasis laid on the transitory nature of these proceedings, will the Chancellor urge our representative on the International Monetary Fund to clear up an exactly similar system which has been in operation for months with Italy, and is doing great damage?

Sir S. Cripps

I understand that the International Monetary Fund is pressing Italy to discontinue.

Mr. Ivor Owen Thomas

Can my right hon. and learned Friend say whether the views of the Government of the United States have been sought and obtained on this position, in view of the effect it is likely to have on the working out of the Marshall Plan?

Sir S. Cripps

We have worked throughout in the closest association with the United States Government, which is represented on the International Monetary Fund.

Sir W. Smithers

In view of the serious repercussions that will ensue as a result of this momentous decision of the French Government, does the Chancellor realise that this decision has completely wrecked the planning policy of the Government? [Laughter.] This is very serious. Has it not also wrecked their cheap money policy? Does the right hon. and learned Gentleman realise that if the Government break the law of supply and demand, that law will break them?

Mr. Mikardo

Will my right hon. and learned Friend reconsider the decision, announced by the Foreign Secretary last week, partially to raise the ban on foreign travel?

Sir S. Cripps

I hope this will not make that necessary. That was, as my right hon. Friend the Foreign Secretary said, subject to agreement with the specific countries, and we hope we shall be able to come to agreement with France.

Mr. Austin

Does not this flouting by France of an international agreement indicate that we cannot trust a Right Wing Government anywhere?

Mr. Speaker

These questions are becoming ridiculous.

Mr. W. Fletcher

Is not the scheme largely designed to bring back to France an enormous amount of foreign currency, including sterling, that had escaped before, and on what does the Chancellor base his hope that that will not occur again with great detriment to the pound?

Sir S. Cripps

One of the main objects of the French scheme is to repatriate dollars and gold and not sterling. They have plenty of holdings in sterling and are not concerned with the repatriation of sterling.

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