INTERNATIONAL MONETARY FUND BILL (Hansard, 10 July 1970)

§ The Minister of State, Treasury (Mr. Terence Higgins)
I beg to move, That the Bill be now read a Second time.
Perhaps, Mr. Deputy Speaker, I might first be allowed to congratulate my constituent on her election to your present high office.
This is a short and simple Bill. The immediate purpose is to enable the United Kingdom to take up its increased quota in the International Monetary Fund in accordance with the arrangements for increasing the resources of that Fund described in full in Cmnd. 4353. I believe that hon. Members will by now be as familiar with the technicalities as with the significance of quotas and quota increases, and I have no doubt that this Measure will have support in all parts of the House.
The Bill carries forward the changes in the technical arrangements for increasing international liquidity which have been made in recent years, and is in some ways complementary to the 1968 Bill, which increased unconditional liquidity by moving towards the creation of S.D.Rs. This Bill is designed to increase conditional liquidity and is a further step forward. I hope that all hon. Members will support the Measure, but if there are any particular technical points which they wish to raise, I shall be very happy to deal with them, either today or, if it is considered more appropriate, in Committee.

§ Mr. Dick Taverne (Lincoln)
Although the Bill is exceedingly short, it is one of the most important Bills to be introduced this week, or to be introduced before the Summer Recess. As I know that two of my hon. Friends wish to speak, I shall confine myself only to commenting that the whole House should welcome the Bill. It means an expansion of international liquidity in the best possible way—a rational, ordered expansion of international liquidity. It will, therefore, provide a firmer basis for the expansion of that international trade on which our welfare and that of other 1096 nations depends. I commend the Bill to the House.

§ Mr. George Cunningham (Islington, South-West)
In rising to make my maiden speech on this tiny Bill and at this time I am conscious of squeezing myself into a rather restricted space in terms both of order and of time. That is probably no bad thing from the point of view of the rest of the House.
As Member for Islington, South-West, I succeed Mr. Albert Evans, who represented that and his preceding Islington constituency for close on a quarter of a century. Older Members will recall the effectiveness of his interventions, particularly on the subject of housing, which is a major question in my constituency. I am sure that they will join me in wishing Mr. Evans well in his retirement.
Before coming to the House I had spent the greater part of my previous career as a civil servant. I mention that to form a peg on which to hang a plea for the improvement of Governmental habits by a breakdown in the apartheid—there is no other word—which exists between civil servants and politicians. There is a feeling among some civil servants that there is a great divide between that form of human being which is a politician and that form which exists in Whitehall. This feeling does not exist in many other countries and is a weakness in our system. We could do with more contact outside office hours between these two forms of people who are both deeply concerned in the one business, that of government.

§ Mr. Speaker
Order. I hesitate to interrupt a maiden speaker but the hon. Gentleman must link what he has to say with the Bill before us dealing with the International Monetary Fund.

§ Mr. Cunningham
I will come to the Bill immediately. This Bill and its two Clauses open up very interesting questions. The International Monetary Fund is an institution of international monetary control which is now not only indispensable to the world but one with which this country has a particular connection. The late Lord Keynes was instrumental in its creation and since then successive British Governments have been 1097 closely involved in the various extensions of the functions of the Fund. Front Bench speakers have referred to the special drawing rights which form one of the most dramatic and useful extensions of the functions of the Fund which have recently taken place.
I want to draw attention to one aspect of Clause 1 which will be extremely important. What we are doing is to provide for monies to be paid as approved by Parliament. There will be an opportunity, when special drawing rights go to the next phase, possibly to adopt a different method of providing international liquidity. Successive British Governments have been interested in extending international liquidity in a form which has a particular connection with the position of under-developed countries.
It was a pity that there was not enough support for that among other countries to allow it to be done on the last occasion. I am sure that the present Government, like the previous Government, would wish to try this again on the next occasion. It could be done in two ways, first by the distribution of S.D.R.s disproportionately to the less-developed countries. That is the most obvious way. The other way would be to distribute some of the S.D.R.s not to national Governments but direct to some such institution as the International Bank which would then use them, without national parliamentary approval, to invest in developing countries. There would be enormous advantages in doing that in respect of some very small part of the additions to S.D.R.s upon which we decide in future.
It may seem curious that a Member of Parliament, albeit a very new Member, should propose that what might be regarded as public funds should be made available to the less-developed countries without passing the approval of national Governments. I would draw attention to the situation which has existed in Washington over the last year or two where there has been an attempt to get away from Congressional approval of some aid funds because of the enormous difficulties that this can create.
We are blessed in this country with greater enthusiasm for the voting of funds for that purpose at present than are the Americans, but that may not always be the case. To provide a 1098 proportion of new S.D.R.s direct for the use of the International Bank would not only assist in the multilateralisation of the aid process but would also stress the fact that the aid business is essentially a global operation, albeit at the moment conducted through bilateral mechanisms. In view of the lateness of the hour, I will not expand my remarks any further.

§ Dr. John Gilbert (Dudley)
The purpose of the Bill is unexceptionable. There will be widespread agreement that much still remains to be done before we can regard the present state of world currency markets as satisfactory, or can have any real confidence that the arrangement for increases in international reserves in line with anticipated and hoped for increases in world trade can be considered adequate.
The world is confronted with three distinct possibilities. The first is that world trade will cease to expand. The second is that long-term arrangements can be made for regular and adequate increases in world reserves and for their distribution between countries as and when they need them. Finally, alternative arrangements can be made that would enable world trade to continue to expand but would not need reserves to expand at anything like the same rate. In other words, that the ratio of reserves to trade can be allowed to fall without adverse affects on the growth of trade. These are the choices and there are no others available.
The first prospect, namely, that there can be no increase to be hoped for in world trade, we would all reject. This Bill is concerned primarily with the second set of possibilities, that of steadily increasing global reserves in line with increases in world trade. Given the present international monetary arrangements in force, it is clearly a step in the right direction. Taken in conjunction with the recent introduction of S.D.R.s it will form a useful advance.
But this whole line of approach suffers from various fundamental defects. The first is that one needs every so often to go back to get international agreement for further steps to increase reserves in this way. This agreement is often hard to get and often comes very late in the day. It can often only be reached after 1099 a period of prolonged crisis in international money markets. In the absence of a series of ad hoc arrangements of this sort the only way we have at present of increasing world reserves is either through the continuance of balance of payments deficits on the part of the reserve currency countries or through increasing the supply of newly-mined gold coming on the market for monetary purposes.
It is not my purpose today to discuss the unsatisfactory nature or even the impermanence of these various sources of supply of international reserves. These matters will long have been obvious to all members of the House. I would prefer to ask the House to consider the various proposals that have been made that would enable trade to expand without the need for a concomitant increase in reserves. In this field a major and most welcome series of proposals were made earlier this week by the United States Executive Director of the I.M.F. at a meeting of the Fund's Executive Board.
The American proposals involve three major reforms. First, a widening of the margins within which currencies are allowed to fluctuate either side of their fixed peg from the present 1 per cent. to the suggested 3 per cent. Secondly, the legislation of the floating of exchange rates for certain fixed and limited periods. Third, the introduction of one of the variants of the crawling peg by which freuent minor changes in a currency's parity can be introduced and which are derived from certain given formulae without the need for international supervision or permission.
If we had only one of these proposals introduced we would of course be making very considerable progress. My right hon. Friend the Member for Stechford (Mr. Roy Jenkins) in the past has been in favour of the wider bands proposal as it is called. This undoubtedly would provide considerable relief but I have my doubts as to its long-term satisfactoryness. It would make speculation in international currencies more difficult but it would do little to make transmission from one parity to another any easier.
A suggestion has been made for more flexible rates. My personal preference is for some variation of the crawling peg by which exchange parities can be 1100 changed a little at a time according to formulae laid down in advance. This does away with the great drawback of freely floating exchange rates in that an element of certainty is involved. One knows what is going to happen. I am sure hon. Members will agree that while world trade may have difficulty in coping with change it is not really change which is the problem but uncertainty. If you know the change that is to take place and the direction in which it will take place it is perfectly possible for intelligent traders and investors to cope with those developments.
My own preference is for a system which will reduce the need for international reserves but even if it does not produce a once-and-for-all solution I hope that it will largely do away with the periods of crisis and uncertainty which precede measures of the sort we are discussing.
If we had had any or all of these proposals adopted we would, of course, not have solved all our problems over night. They would not emancipate Governments from the need to guard against depreciation of the internal value of their currency or from the need to follow full employment policies. As long as we have any rigidity at all in exchange rate policy there must be some conflict between the maintenance of existing exchange rate and policies of full employment. I hope that the Chancellor of the Exchequer, to whom I extend sympathy in his present illness, will take note of these American proposals which give a very imaginative lead. We do not need them overnight and shall not get them overnight, but I hope that the House and the Government will consider them closely and favourably.

§ Mr. Higgins
By leave of the House, it is my very great pleasure first to congratulate the hon. Member for Islington, South-West (Mr. George Cunningham), and the hon. Member for Dudley (Dr. Gilbert) on their maiden speeches, which I do most enthusiastically. This is a somewhat esoteric Measure on which to speak on the first occasion in this House. We listened to them with very great pleasure.
As the hon. and learned Member for Lincoln (Mr. Taverne) pointed out, this 1101 is a Measure which has wide agreement through the House. Some interesting points have been raised and I hope that in committee we shall be able to deal with them in detail and to cover the various matters raised in the debate. I again congratulate most sincerely hon. Members who have made maiden speeches.