§ I turn now to external developments.
§ Last September the Committee of 20 was set up by the IMF to advise and report on all aspects of reform of the international monetary system.
§ This was particularly gratifying to the United Kingdom, because of the lead which successive Chancellors have consistently given to the reform of the old international monetary system—particularly my right hon. Friend the Member for Barnet (Mr. Maudling) and the right hon. Member for Cardiff, South-East (Mr. Callaghan) as well as myself. This is work, the urgency of which has been increased by the strains on the existing 243 system which have been experienced this year.
§ We have already debated in this House the course of events leading up to the dollar devaluation of 12th February. As I said during that debate, nothing could have emphasised more starkly than those events did, the paramount need for a more efficient monetary system.
§ We were able to achieve last month—and with remarkable speed—a set of moves which, I have no doubt, has established an exchange rate for the dollar against other currencies at which the United States economy will be fully competitive in world markets and which would, in due course of time, provide the United States with a strong balance of payments. Yet the exchange markets did not settle down and were again acutely disturbed just before this last weekend. Consultation started almost immediately. The purpose of that consultation is to ensure that trade and production, whether on a worldwide scale or a European scale, are not strangled by the sort of disruption which has been experienced in the foreign exchange markets.
§ I do not think that any previous Chancellor has found himself attending an international conference of major importance two days before delivering his Budget or has been faced with having to be abroad for further discussions for three more days before the Budget debate has ended. I know the House will appreciate the reason if I reluctantly have to miss some parts of the debate—[An HON. MEMBER: "You will be very lucky."] Perhaps I might interject here that when I explained to some of my colleagues in Europe that attending the meetings would create great difficulty for me because I would have to miss part of the Budget debate, they made much the same observation.
§ Although these are matters of great importance and urgency, there is no crisis affecting our own currency. Sterling has not been under pressure. What we are having to deal with is the international payments system as a whole.
§ Our discussions this week will include countries other than those in the Nine, and our objective will be to try to agree on action on a worldwide basis. Last Sunday, in the meeting of the EEC Council, a number of ideas were put 244 forward for dealing with the situation. These included, as is well known, the possibility of a joint float by the European currencies as a means of protecting European countries from extreme speculative pressures and of ensuring that the development of the European economic system is not distorted by movements in relative exchange rates in Europe which are not related to underlying economic realities.
§ With regard to the proposal for a common float, I said that a number of conditions were essential in the interests of the Community as a whole in order to ensure both that a common float could come into existence and that it could endure. In the current economic situation, these were the only conditions which would guarantee that the collective float could succeed and they were therefore in the interests of all the other countries concerned as well as of the United Kingdom.
§ Those conditions are: first, the starting pattern of central rates must be acceptable to each member in terms of its immediate economic problems.
§ Second, each member must have an unimpaired right to change its central rate after consultation with the Council of Ministers.
§ Third, we must all be prepared to grant support without limits of amount, without conditions, and without obligation to repay or to guarantee. Only the knowledge that support is unlimited and does not impose impossible burdens on the receiving countries can make the system proof against short-term capital flows of the magnitudes now experienced. This is an essential condition for the whole Community; and certainly the United Kingdom could not join in a collective float unless it is met in full.
§ Fourth, some, at least, of the support should be interest-free.
§ Fifth, the pattern of exchange rates established in connection with a joint scheme should not lead to an immediate increase in food prices for the United Kingdom and any necessary increase should be spread over a long period.
§ On this basis the arrangements proposed would have three positive advantages for the United Kingdom, in addition to the advantages for Europe inherent in the scheme itself. The 245 advantages for the United Kingdom would be these: first, they would enable us to maintain an exchange rate at a level which would help the attack on inflation by keeping down import prices.
§ Second, the rate structure would be supported by the resources of the whole EEC and would be secure against speculation.
§ And, third, the United Kingdom would be effectively insulated from the perennial risk presented by our widespread sterling liabilities.
§ Such arrangements would, of course, represent an important step towards Economic and Monetary Union.
§ But a collective float is only one of a number of solutions which are being considered this week, and it remains to be seen which of the various ideas will emerge as the agreed line of action in the wider group. This is not an esoteric exercise, nor is the work of the Committee of 20. Decisions taken in these conferences vitally affect employment, prices and national prosperity.
§ The Finance Ministers of the EEC will be considering proposals for the reform of the system at a meeting later this month, and the Committee of 20 will be meeting again in Washington in the following week. I am sure that by the time we meet at the IMF in Nairobi in September we can and should reach agreement on the main framework of a plan for reform on the basis of which we can take practical decisions.
§ Details of the balance of payments outturn for 1972 are published today. We had a small surplus on current account, with the deficit on visible trade slightly more than offset by the further large surplus from services and income from abroad.
§ The House will recall that in my Budget Statement a year ago, I said that the balance on visible trade would be less favourable as imports increased with the pick-up in domestic demand. On the other hand there was a general expectation—not only in this country but in organisations such as the OECD—that world trade would become more buoyant. In the event world trade was sluggish. This was especially so in primary producing countries, on whose markets we particularly depend.