HC Deb 23 November 1971 vol 826 cc1107-10
1. Mr. Kenneth Baker

asked the Chancellor of the Exchequer what representations about the exchange level of the £ sterling he intends to make to Mr. Connally at the meeting of the Group of Ten in Rome.

7. Mr. Patrick McNair-Wilson

asked the Chancellor of the Exchequer what action he is proposing to take with the other members of the Group of Ten to find a satisfactory solution to the current international parity instability, following the recent actions of the United States of America; and if he will make a statement.

15. Mr. Cronin

asked the Chancellor of the Exchequer if he will make a statement on the progress being made by the countries of the Group of Ten and the United States of America in resolving the monetary crisis, following the measures introduced by President Nixon in August this year.

The Chancellor of the Exchequer (Mr. Anthony Barber)

The Group of Ten will meet in Rome on 30th November and 1st December. The aim of a realignment of parities which will bring an end to recent trade restrictions is, I believe, generally shared. The Government's policy is to work for a realignment which is realistic and sustainable, both generally and in relation to the sterling parity.

Mr. Baker

Has the Chancellor seen the recent statement by Mr. Connally that it is in the interests of America for the present uncertainty to continue? That is not in the interests of Western Europe. So, at the meeting in Rome, will he take a personal initiative and perhaps concentrate on persuading the Americans, as this seems to be the chink in the armour, to revalue the dollar price of gold?

Mr. Barber

I hope and believe that the United States Administration would like to have a settlement of the variety of problems which now confront us following upon the announcement by the President of the United States on 15th August.

In answer to my hon. Friend's second request, I am quite convinced that a realignment will be easier to achieve if there is a change in the price of gold.

Mr. McNair-Wilson

Does my right hon. Friend believe that we should support the American attempt to demonetise gold? Does he agree that if we do not get a speedy solution to this parity crisis we may end up with a protectionist trade war throughout the West?

Mr. Barber

If we do not get a reasonably early settlement of the problems which now confront us, I believe that there is a real danger that some countries will consider taking action which could result in a trade war of one kind or another.

Regarding the demonetisation of gold, I have already put forward in some detail my own proposals for the longer-term solution, with the object of establishing a neutral reserve asset. The particular one which I have suggested, and which I believe commands considerable support, is the use of S.D.R.s.

Mr. Cronin

Will the right hon. Gentleman point out to the United States Administration in simple terms that their unsupportable arrogance in refusing to devalue the dollar endangers not only world monetary stability but their own financial interests?

Mr. Barber

I have my own views on this matter. I do not wish to say anything before the meeting in Rome which would prejudice a happy outcome.

Mr. Boyd-Carpenter

Before my right hon. Friend abandons the regulatory advantages of a floating £, will he pause to reflect whether the Bretton Woods system of fixed parities has not been as great a disaster to the world as was the return to gold at pre-war parity in the 1920s?

Mr. Barber

I should point out to my right hon. Friend that what is happening now in foreign exchange markets is not free floating or, indeed, anything like it. I do not believe that completely clean floating is practicable. Indeed, I am not sure that it is being practised anywhere. I think that my right hon. Friend will agree that it would expose any economy to sudden and severe shocks as changes in the price of foreign exchange affected the domestic price level. Also, large speculative capital flows could result in exchange rates entirely unwarranted by the domestic economic situation. I believe, with most, if not all, in the Group of Ten, that a return to a realistic pattern of parities is in the best interests of ourselves and the world.

Mr. Pardoe

Is the right hon. Gentleman aware that floating the £ is about the only sensible policy in the economic field which the Government have so far pursued, and that to ditch it at this stage would be a total disaster? Is the right hon. Gentleman further aware that fear of going back to fixed parity is undermining investment confidence in this country?

Mr. Barber

I disagree entirely with the hon. Gentleman. If one discusses this matter with business men and with others who take decisions, one learns that the uncertainty created by the present situation is one reason for the lack of investment which we are experiencing.

Mr. Powell

Would not my right hon. Friend agree that the only realignment of currencies which can be lasting and satisfactory is one which is continuously worked out by a free market, and that what is impeding a free market now is the attempt of countries, in expectation of a refixing of parities, to jockey for a favourable position?

Mr. Barber

If we lived in a completely pure and theoretical world I should be somewhat inclined to agree with my right hon. Friend, but I can only tell him that in my honest judgment, having discussed this matter with other Ministers of Finance, I do not believe that completely clean or pure floating is practicable.