HC Deb 30 May 1963 vol 678 cc1543-6
The Chancellor of the Exchequer (Mr. Reginald Maudling)

I wish to announce a new step in the development of our policy on international liquidity problems.

In recent years we have strongly supported such developments as the increase in Fund quotas by 50 per cent., and the scheme whereby 10 major industrial countries, including Great Britain, stand ready to lend the Fund their currencies up to agreed limits.

In 1961, the Governors of the Central Banks evolved the system of mutual support, by which we obtained assistance of 910 million dollars in 1961 and 250 million dollars in February and March this year. In parallel with arrangements of this kind, the member countries of the European Monetary Agreement, including the United Kingdom, have also evolved an arrangement for effecting and reporting to each other measures of short-term assistance, and our friends in the Scandinavian countries have a similar arrangement under the Treaty of Nordic Co-operation.

The United States has, since 1961, negotiated short-term "swap" facilities and borrowing arrangements with a number of countries, including one of 50 million dollars with us.

We have been pursuing in international discussion methods of meeting the longer-term problems, including the scheme for a Mutual Currency Account which I proposed last September, and other possibilities. These discussions, to which Her Majesty's Government attach very great importance. are making useful progress.

We have now agreed with the United States Federal Reserve System on the provision of a reciprocal swap facility of 500 million dollars. This will be on a standby basis, to be activated at the request of either party if and when the need arises. The maintenance of the international payments system—of international liquidity, in fact—depends on the stability of the two major reserve currencies.

This new arrangement is a very concrete expression of the close co-operation which exists between the monetary authorities of our two countries. It will be of benefit not only to us, but to the strength and stability of the world payments system generally.

Mr. Callaghan

May I welcome the interest that the Chancellor is showing in this problem and say that we on this side, naturally, welcome the arrangement that has been made? I should, however, like to put three points to the right hon. Gentleman.

First, in view of the pressure in the United States to raise short-term interest rates, is he taking any steps to safeguard our position in relation to short-term money? Is there any chance of co-ordinating our policy so that the Americans do not raise their interest rates?

Secondly, is the Chancellor proposing to take any steps concerning the International Monetary Fund, where the Government have a standby credit of 1,000 million dollars, which will run out in August, so that we shall have access to the currencies of all countries, and not only to the dollar, during any period of pressure that may lie ahead?

Thirdly, while this step is welcome as far as it goes, does it not put us in the position where two currencies, both of which are liable to attack, may be trying to support each other? Does it not point to the necessity of expanding the monetary base for world trade on a permanent basis by strengthening the International Monetary Fund, so that we can both expand our trade here and also trade with the developing countries?

Mr. Maudling

I think it unwise for me to comment on the trend of short-term interest rates in this country, but to comment on the likely trend in the United States would be even more dangerous. As to the standby, we are having discussions with the Fund about a number of things on the normal basis and I should not like to make a statement at this moment. I think, however, that the availability of the standby has been generally recognised as being beneficial.

In reply to the third point, I accept that this is not a solution to the long-term problem. It is a very big problem which will take a long time finally to solve. Meanwhile, however, it greatly increases the co-operation between the two key currencies, the dollar and sterling. Anyone who tried to make a simultaneous attack on those two would be taking on a formidable target.

Mr. Callaghan

If the Chancellor is not able to do anything about coordinating short-term interest rates, will the swop of 500 million dollars be available to defend our own position if a rise in the short-term interest rates in New York were to encourage money to flow from here across the Atlantic?

Mr. Maudling

We are always trying, through the O.E.C.D. particularly, to get more co-ordination in short-term money rates, and money rates generally, but certainly, in so far as movements in money rates in various capitals affect the flow of short-term money, arrangements of this kind are available to iron out the difficulties.

Sir H. d'Avigdor-Goldsmid

Is my right hon. Friend aware that his initiative in extending our liquidity and increasing our reserves comes particularly welcome at this moment when our balance of payments is suffering major blows on Epsom Downs? Does he bear in mind that no system will work which does not take into account the interest of the creditor Powers as well as the debtors, the United States and ourselves being debtors? Can he enlist the support of the creditor Powers in this useful initiative which he has proposed?

Mr. Maudling

I am happy to say that not every balance of payments suffered at Epsom Downs yesterday.

On the broader issue, there is a great deal of substance in what my hon. Friend says. But the purpose of this arrange ment is to strengthen the co-operation between the two currencies which are in a unique position. It is because we are debtors that the world has our money with which to finance trade.

Mr. Lubbock

To use a point raised by the hon. Member for Cardiff, South-East (Mr. Callaghan) about the pressure which sometimes occurs on the £ and dollar simultaneously, may I ask whether it would not have been helpful if the Chancellor could have negotiated similar arrangements with the E.E.C. countries at the same time?

Mr. Maudling

We have, of course, the arrangements of the so-called Basle Agreement, which were very useful to us in February and March.

Forward to