HC Deb 20 November 1968 vol 773 cc1298-304
The Chief Secretary to the Treasury (Mr. John Diamond)

With your permission, Mr. Speaker, and that of the House, I should like to make a statement about the closure of the London foreign exchange market and the Chancellor of the Exchequer's visit to Bonn.

The House will be aware that, during the past week, there have been speculative movements in international currency markets. The speculation has centred on the French franc and the Deutschemark and has, in turn, brought pressure on the reserve currencies, both the U.S. dollar and sterling.

Last night, the Government of the Federal Republic of Germany announced their intention to introduce urgently certain tax changes designed to encourage imports into their country and to slow down exports.

In the field where they apply, these tax changes will have the same effect as a revaluation of the Deutschemark. The amounts will be made public when the necessary proposals are submitted to the Bundestag.

Last night, also, the German Minister of Economics, Professor Schiller, as Chairman of the Group of Ten, invited his Ministerial colleagues of those countries to a meeting this afternoon in Bonn to discuss this position.

My right hon. Friend the Chancellor of the Exchequer accepted Professor Schiller's invitation and has flown to Bonn this morning.

We were informed last night that, in the circumstances, the Governments of certain other countries had decided to close or limit dealings in their foreign exchange markets today. Accordingly, we have ourselves taken action to close the London foreign exchange market today. This has been done by withdrawing temporarily the authority given under the Exchange Control Act to authorised banks to deal in foreign currency.

Authorised banks have, however, been given authority to implement contracts in foreign exchange entered into before today, to accept and make deposits in foreign currency, and, at their discretion, to meet the normal needs of travellers for travel facilities. The ordinary domestic business of the banks is, of course, in no way affected.

The Chancellor of the Exchequer will, of course, make a statement to the House on his return from Bonn, and, as the meeting there is only just beginning, the House will not expect more details from me today.

The Government's objective is to maintain order and stability in the world monetary system and we hope to restore the normal working of the markets as soon as possible.

Mr. Iain Macleod

Although this is a holding statement, the House will be grateful to the right hon. Gentleman for making it and for submitting himself to questions. While we are waiting for a fuller statement from the Chancellor, I would like to put just two points.

First, it is, of course, a serious step to close the London foreign exchange market. When does he expect it to reopen? I hope that it will be tomorrow, but if not, will he make a statement as soon as possible today?

Second, it seems unlikely that the Chancellor will return until, perhaps, tomorrow afternoon, and the House will want to hear him at once. Would the Chief Secretary bear in mind that it is much more convenient for the House, even at the risk of a short interruption of tomorrow's debate, say, at seven o'clock, to hear the Chancellor on Thursday afternoon rather than wait until Friday morning?

Mr. Diamond

Reopening the foreign exchange market would depend on whether other Governments wished to maintain the closure of their markets, which, in turn, may depend upon how the discussions in Bonn go on, so there will in any event have to be an announcement later on this evening.

On the second point, I realise what the right hon. Gentleman has said. It is not possible for me to say, obviously, when the meeting will end,. and, therefore, when my right hon. Friend will be able to make a statement to the House. I certainly take note of the fact that it will obviously be much more convenient for the House if that could take place on Thursday rather than Friday.

Mr. Dickens

Can my right hon. Friend say, first, what estimates he has made of the outflow of currency from the £ sterling to Deutschemarks in recent days by private speculators for private gain? Second, is he aware that many of us on this side want the Government to bring back exchange controls to prevent further speculation against the £ and to limit transactions to those for normal trading purposes only?

Mr. Diamond

It is not possible for me to make an estimate of the kind for which my hon. Friend asks. I take note of his second point and will see that his views are conveyed to my right hon. Friend.

Sir G. Nabarro

Having regard to widespread speculation about additional curbs on spending during the 28 remaining shopping days before Christmas, would the right hon. Gentleman give an assurance that there will be no increases in indirect taxation of any kind in our fiscal arrangements until the new calendar year?

Mr. Diamond

I can give the hon. Gentleman an unqualified assurance that, when my right hon. Friend the Chancellor addresses the House, he will be only too glad to answer that question if it is put to him then.

Mr. Barnett

In view of the backing of the recent agreements in Basle and the prospects of a surplus on balance of payments in 1969, would my right hon. Friend confirm that, in his view, the £ has nothing to fear from panic short-term pressures, and that there is no need for further heavy deflation?

Mr. Diamond

I am grateful to my hon. Friend for what he has said. His view must be the same as mine, that it is the main responsibility of the Government to maintain the stability of world currency markets.

Mr. Powell

Do the Government not realise that the crazy policies which the German Government are imposing upon the German people are the counterpart—

Mr. Faulds

Nice to see you back.

Mr. Speaker

Order. I must again ask the hon. Member for Smethwick (Mr. Faulds) to control himself.

Mr. Powell

Do the Government not realise that the crazy policies which the German Government are imposing upon the German people are the counterpart of the crazy policies—

Mr. Faulds

You should talk about crazy policies.

Mr. Powell

—which this Government have been trying to impose upon our people, and that both are the symptom of the absurdity of a system of fixed exchange rates? [Interruption.]

Mr. Speaker

Order. Noise does no good to those who make it or harm to those against whom it is directed.

Mr. Diamond

I can only answer for the policies of this Government. I do not share the views of the right hon. Member for Wolverhampton, South-West (Mr. Powell) as to the policies of this Government, or, indeed, on many other things.

Mr. Faulds

The right hon. Member for Wolverhampton, South-West (Mr. Powell) is a pariah.

Mr. Cant

While supporting any action which the Government may take to meet the present difficult situation, may I ask my right hon. Friend to try, in any public statement which he or any member of the Front Bench might have to make, to dissipate this atmosphere of gloom and to persuade the people that it is, if not wholly a contrivance of the hedgers and speculators, nevertheless something which the Government—here, I follow my hon. Friend the Member for Lewisham, West (Mr. Dickens)—will have to consider when conditions are calmer in international markets, and that is the relief of the pressures on sterling which spring up from time to time?

Mr. Diamond

I am not aware of any gloom.

Sir A. V. Harvey

Is the right hon. Gentleman aware that in trying to persuade people in this matter, the newspapers for the last week have been carrying headlines every day about possible further credit restrictions? Would he agree that it is this sort of thing that creates a lot of uncertainty, not necessarily in the Government but in the £, and unsettles everybody?

Mr. Diamond

I share the hon. Gentleman's view that unnecessary anxiety is caused by inaccurate and widespread speculation. However, he will share my view that a free Press is a healthy part of our democratic institution.

Mr. Sheldon

Is my right hon. Friend aware that his statement highlights the fact that the main economic problem of our time is not increased liquidity—valuable though that might be—but the need for an orderly and planned variation in exchange rates? Would he convey this fact to the Chancellor of the Exchequer so that he may proceed with international discussions to ensure that this point is fully seized and that it leads to the kind of orderly exchange rate variation in future which we so much need today?

Mr. Diamond

I have listened most carefully to my hon. Friend's comments and I will be only too glad to convey them to my right hon. Friend.

Sir H. d'Avigdor-Goldsmid

As the right hon. Gentleman is already aware, the French, who are the main sufferers at the moment, have decided to close their markets until Monday. Does this not suggest that we are a long way away from the quick solution which the flying visit of the Chancellor to Bonn may have hinted at? Would the right hon. Gentleman agree that we are faced with a major upheaval, and should we not now, instead of indulging in cheering prophecies, look to our own defences?

Mr. Diamond

I am aware of what the hon. Gentleman said about the French position. It does not alter the answer I gave in relation to what we propose to do about our markets.

Mr. Spriggs

Would my right hon. Friend agree that nothing should be said in this House which might harm, directly or indirectly, the people who earn the wealth of the country?

Mr. Diamond

I agree entirely with my hon. Friend. During the last 10 minutes or so I have been trying to carry out his views as fully as I can.

Mr. Richard Wainwright

In addition to the purely national Finance Ministers who are attending the meeting which is now taking place in Bonn, are there any international representatives there; for example, from the International Monetary Fund and the Bank for International Settlements?

Mr. Diamond

I understand that Mr. Pierre-Paul Schweitzer will be there.

Mr. Gardner

While I do not agree with all the views of the right hon. Member for Wolverhampton, South West (Mr. Powell), and do not want to make things more difficult, would my right hon. Friend accept that millions of working people throughout Europe cannot understand why the only way to preserve our currencies is, in effect, to reduce trade? Cannot we produce a more sensible world financial system?

Mr. Diamond

My hon. Friend will be aware that both the present Chancellor of the Exchequer and his predecessor have spent years trying to achieve that very thing.

Mr. John Smith

Since the suggestion has again been made, could the right hon. Gentleman confirm once and for all what he knows to be true, namely, that it is physically impossible, legally or illegally, for British residents to speculate in foreign currencies?

Mr. Diamond

I regret that I am not sufficiently informed of the details to be able to give that assurance.

Mr. Molloy

Would not my right hon. Friend agree that the remark of the right hon. Member for Wolverhampton, South West (Mr. Powell) about current German financial policy came from a Member who seems to be embracing former repugnant German policies?

Has my right hon. Friend taken note of the fact that when a serious situation of this character arose some time ago certain big businessmen took the view that their action, while derogatory to sterling and anti-British, was, nevertheless, good business? Will he prevent that sort of thing from happening again?

Mr. Diamond

I am not in a position to add very much to what I have already said. I hope that the House will bear with me sympathetically on that account.

Mr. Biffen

Can the right hon. Gentleman confirm that in their approach to international monetary reform the mind of the Government is not closed to the possibility of increasing the price of gold and the movement to a system of floating exchange rates?

Mr. Diamond

I can assure the hon. Gentleman that the Government's mind is not closed on any topic of any kind.

Several Hon. Members

rose—

Mr. Speaker

Order. We have a lot of business today.