HC Deb 19 November 1968 vol 773 cc1102-4
25. Mr. Biffen

asked the Chancellor of the Exchequer by what amount he estimates that the reserves will benefit as a result of the decision to withdraw the exchange control authority under which United Kingdom banks have been able to provide sterling finance for trade between non-sterling area countries; and what are the estimated annual invisible earnings that have arisen from this business.

33. Mr. Patrick Jenkin

asked the Chancellor of the Exchequer what estimate he has made of the annual loss of foreign exchange earnings that will be incurred by reason of the withdrawal on 11th October, 1968, of the authority covering sterling usance credits and lines of facilities in respect of trade between non-residents; and when he expects to restore the authority.

42. Mr. Kenneth Baker

asked the Chancellor of the Exchequer to what extent the invisible earnings of the United Kingdom will be reduced by forbidding United Kingdom banks to finance non-sterling-area countries' trade.

The Financial Secretary to the Treasury (Mr. Harold Lever)

With permission I will answer this question and Questions Nos. 33 and 42 together.

In the third quarter the estimated total of sterling credit outstanding in this business was £50 million and represented a burden on our reserves of that amount which will now gradually be removed as the credits are repaid. The net effect on national invisible earnings, which must make allowance for offsetting factors, is not likely to be significant.

Mr. Biffen

Is the hon. Gentleman aware, first, that, much as he is held in admiration and respect in the House, there will be widespread regret that on a day when sterling stands at its lowest exchange parity with the dollar the Chancellor of the Exchequer is not in his place to answer Questions?

Mr. Speaker

Order. May we now have the supplementary question?

Mr. Biffen

Is the hon. Gentleman aware, secondly, that this is a very small-minded restriction which merely underlines the fragility of sterling as a reserve currency and can but cause concern to our overseas creditors?

Mr. Lever

This matter has no relation whatsoever to sterling's rôle as a third currency. This relates precisely to credit granted to non-sterling area countries in respect of trade, which has nothing to do either with this country or with any other part of the sterling area. I cannot see how any fragility can be attributed to it.

Mr. Jenkin

Does the Financial Secretary recognise that if this trade is not financed in the City of London, it will probably be financed by Euro-dollars and Euro-sterling? Will he accept that, if this results in the increase of rates of interest, and therefore the loss of attraction of deposits in the City of London, the advantage which he claims for his ban will be more than offset by the loss of currency from the sterling area?

Mr. Lever

The hon. Gentleman is entirely mistaken in supposing that a trifling sum in relation to total Euro-deposits of this kind could affect the rates of interest. It has no relation whatever to the need to restrict credits in respect of third party trade not undertaken by any member of the sterling area or by this country out of our reserves.

Mr. Speaker

Mr. Dickens.

Mr. Kenneth Baker

On a point of order. My Question was called in conjunction with Question No. 25.

Mr. Speaker

I was not informed which Questions were to be grouped; it is usual for the Chair to know.

Mr. Baker

Would not the Financial Secretary agree that, as a result of financing non-sterling area trade, London has earned on the invisible account quite a lot through shipping and insuring this trade and that to put these invisible earnings, or a large part of them, into jeopardy is an unnecessary self-inflicted wound to our financial system?

Mr. Lever

These marginal advantages are more than outweighed by the need of the Government to go out and borrow equivalent sums in foreign currency, and the consequences resulting from that.

Mr. Dickens

Is the Financial Secretary aware that we on this side of the House warmly welcome the decision of the Government to take this step, and we hope that it will encourage my hon. Friend and the Government to take further steps to reappraise the rôle of the City of London in the world economy?

Mr. Lever

My hon. Friend in giving his warm support has given another reason for the Government's decision. Rare though it is, and welcome, I hold an identical view on this point with my hon. Friend.