INTERNATIONAL EXCHANGE RATES (Hansard, 13 February 1973)

§ The Chancellor of the Exchequer (Mr. Anthony Barber)
Yes, Sir. I said yesterday that the consultations on the international currency situation were proceeding well. The whole House will be relieved that a solution has now been achieved.
Early this morning an announcement was made by the Secretary of the United States Treasury.
Its basic feature is a 10 per cent. devaluation of the dollar. This will involve a change in the official relationship of the dollar with SDR and gold. The Japanese authorities have indicated that the yen will be permitted to float. This also applies to the lira. Other major European currencies with fixed exchange rates are expected to reflect in full the 10 per cent. devaluation of the dollar relative to them. Sterling will for the time being continue to float but, as I have said before, we intend to return to a fixed parity when conditions permit.
The London Foreign Exchange Market was reopened this morning; but dealings are still affected by the uncertainties of the last few days.
I welcome these new arrangements. The House will agree that, compared with the events of 1971, which also led to a realignment of currencies, a solution has on this occasion been found with remarkable speed, having regard to the range of interests involved and the complexities of the issues. This would certainly not have been achieved without the intensive consultations which took place over the weekend. As the House knows, we have throughout kept in close touch with European colleagues. I would add in particular that the way in which the United 1145 States, whose currency came under such severe pressure, has taken bold and constructive action in consultation with others, augurs well for future relationships across the Atlantic.
But if the immediate difficulties have been resolved, the clear lesson to be drawn from the events of the past few weeks or so is the paramount need for constructive and speedy progress towards a more efficient international monetary system. We now need resolute determination to achieve results, and this will be my purpose when I attend the meeting of the Committee of 20 next month in Washington.

§ Mr. Simeons
I am sure that the House will wish to congratulate all those who took part in reaching such a speedy conclusion, and in particular to acknowledge the part my right hon. Friend played. Did any discussions on a two-tier market take place?

§ Mr. Barber
Yes, Sir. In our discussions consideration was given to the idea of two-tier markets. They may be useful in some circumstances, and a number of countries operate them, but they should not be regarded as a panacea for balance of payments problems. Certainly their general adoption would not have provided the answer to the problems we faced at the weekend.

§ Mr. Healey
Does the Chancellor agree that the big difference between the Smithsonian Agreement and what has happened in the past two days is that in 1971 he very unwisely agreed to up-value with the European currencies, whereas on this occasion he has been prepared if necessary to float down with the dollar? May I congratulate him on putting the interests of economic growth in Britain before the Prime Minister's commitment to a European monetary union?
I should like to ask the right hon. Gentleman two specific questions, as according to Herr Schmidt in Germany he was clearly not prepared to have a joint float with the European currencies. First, what steps is he taking to protect the British public against the inflationary effects of a further devaluation vis-à-vis the European currencies? secondly, is he yet in a position to state the consequences of these actions for the British balance of payments under the 1146 common agricultural policy and the contribution to the Common Market budget?

§ Mr. Barber
I do not agree with the interpretation that the right hon. Gentleman put upon the results at the Smithsonian and the results achieved on this occasion.
With regard to the right hon. Gentleman's remarks about the attitude of my right hon. Friend the Prime Minister and myself to the matter, it is natural, at any rate in the present Government, that the Chancellor should throughout have consulted the Prime Minister. I might add, since my hon. Friend the Member for Luton (Mr. Simeons) was kind enough to make some remarks about me, that my right hon. Friend has throughout the negotiations also played a part which has made a major contribution to the quick solution of the problems.
On prices, I would only say that at present, when we have no knowledge of the rates that will be quoted when all the markets are reopened—some of them are not now open—it is not possible to be precise about the effective sterling exchange rate compared with the position before the recent difficulties arose.

§ Sir H. d'Avigdor-Goldsmid
Is my right hon. Friend aware that a decision which eventuates in more and more currencies floating simply increases the risks at which all currencies find themselves? Is my right hon. Friend turning his attention to preparing our defences against the moment, which cannot now be so very far off, when the pressures mount against sterling?

§ Mr. Barber
I do not accept the assumption in the latter part of my hon. Friend's question. With regard to the first part of his question, it is a fact of life that the overwhelming majority of finance ministers throughout the world, including me, believe that the right regime for the world involves fixed but adjustable parities.

§ Mr. Jay
But if the floating of the pound has been such a great success, no doubt with the help of the right hon. Gentleman the Prime Minister, why does the Chancellor of the Exchequer intend to re-fix the rate?

§ Mr. Barber
For the simple reason that I believe, as do an overwhelming 1147 majority of my colleagues throughout the world, that this is the best way to conduct international trade and payments.

§ Mr. Bruce-Gardyne
Would not my right hon. Friend agree that a return to fixed parities within the enlarged Community would enable this country to benefit not only from the mutual support provisions of the Treaty of Rome but also from the mutual discipline arrangements between Governments which might be very desirable, and is not it evident that the outcome of this latest crisis, involving the resolution of the two currencies which were most obviously out of balance, demonstrates the remarkable effectiveness of co-operation in a European context?

§ Mr. Barber
I accept the latter point and most certainly agree, because without that co-operation there is no doubt whatsoever that a solution would not have been found as quickly as it was. With regard to my hon. Friend's first point, I can only repeat that it is our intention to return to a fixed parity.

§ Mr. Healey
I wonder whether the Chancellor of the Exchequer could perhaps address himself to the question I asked earlier. He will be well aware of the trade figures which were published today which fully justify the decision he took not to stay within the "snake in the tunnel" agreement, and not to carry out the Prime Minister's promises at the Summit last October.
What the House and the public want to know is what steps he proposes to take to protect the public against further devaluation of sterling vis-à-vis European currencies and what he estimates will be the consequences for the balance of payments arising out of increased payments under the common agricultural policy and the Community budget.

§ Mr. Barber
If the right hon. Gentleman had listened to the answer I gave he would have noted that what I said was that, with some of the exchanges closed throughout the world at the present time and with the erratic nature of transactions which inevitably have taken place during the first few hours of this morning—for example, already the rate for sterling has been fluctuating between, I believe I am right in saying, 2.41 and 2.51 dollars—it is quite impossible at this stage and 1148 until all markets are reopened to be precise about the effective sterling exchange rate compared with the position before the recent disturbances.

§ Mr. Pardoe
Is the right hon. Gentleman aware that, whatever may have been the fluctuations this morning, sterling seems to have settled down to an effective devaluation against European currencies of about 6 per cent.? Will he confirm that? Is he aware that while this will lead to short-term successes he still appears to have no long-term policy to solve the international monetary problem?

§ Mr. Barber
Is the hon. Gentleman will consider what I said in great detail when I addressed the International Monetary Fund in Washington, I believe he will take the view that what he said about a long-term policy is not borne out by the facts. With regard to his first point, it is surely self-evident—as I would have thought with respect anybody who knows how the market works will understand—that it is far too early to form a judgment on the rate at which sterling will settle down.

§ Mr. Harold Wilson
While the right hon. Gentleman is absolutely entitled to say that it is too early to form a view on half a day's trading in a half-open foreign exchange market and that more time is required to appreciate the full extent of the consequences of what has happened in the last few days, will he explain to the House whether the notional value put on sterling for common agricultural policy purposes at the end of last month is to stick? Is it immutable or is it subject to change in the light of what the final settling down of the sterling rate may be?

§ Mr. Barber
Whatever changes are made will be in conformity with the principles which have been already agreed. I certainly do not see any technical problems arising as far as that is concerned. The arrangements were clearly negotiated and if, because of a different rate for sterling in relation to the dollar, further adjustments are to be made in conformity with those agreed principles, they will be made.

§ Mr. Wilson
Of course I would agree with some of the right hon. Gentleman's earlier answers about not rushing to any 1149 conclusions with regard to further devaluation of sterling, but because I and possibly other hon. Gentlemen may not be clear on this point may I ask him this question: when the notional rate of slightly over 2.35 dollars was fixed for the purpose of C.A.P., was it meant to be a binding rate for a period ahead or was it to be subject to change if the floating rate of the pound were to change? Are we bound to send the amount of money related to that, so that if the pound deteriorates further it means paying more money across the exchange, or would it be subject to the changing rate?

§ Mr. Barber
As I understand it, the amount is subject to adjustment in accordance with the principles agreed and therefore we shall be in consultation with our European partners to see whether, in the light of developments, any adjusment is required.

§ Mr. Cronin
Would not the right hon. Gentleman agree that one of the biggest problems in international monetary policy is the disequilibrum in Japan's external trade? Would he take steps to induce the Japanese Government to take a more co-operative attitude in solving this problem, particularly with regard to accepting more imports from Europe?

§ Mr. Barber
The hon. Gentleman is quite right in stressing the importance of Japan and of the yen as far as our previous imbalance was concerned. The United Kingdom is of the same opinion as the United States in placing great importance upon that. Of course, one of the consequences of the agreement which has been reached will be not merely that the prospects for United Kingdom exports to Japan will he improved as a result of this new arrangement but, conversely, that it will be more difficult for Japan to export to the United Kingdom.