HC Deb 13 June 1974 vol 874 cc1828-32
Mr. Robert Carr (by Private Notice)

asked the Chancellor of the Exchequer whether he will make a statement on reports that an agreement has been made to allow official gold reserves to be used at free market price as backing for international loans.

The Paymaster-General (Mr. Edmund Dell)

The Ministers of the Group of Ten agreed in Washington last night, in informal discussion, that gold might be used as collateral for loans between monetary authorities. The valuation of the gold pledged would be a matter for agreement between the parties and could be related to the market price. The case of Italy was naturally in mind. Minor technical points remain to be settled.

Mr. Carr

I thank the right hon. Gentleman for that reply. I realise that it would be unreasonable to expect him to give details about this matter. But may I ask him three brief questions, of which perhaps the last will be the most important?

First, has an assessment been made, and, if so, can he give any idea of it, in general terms, of the effect of this decision on the interests of this country? Secondly, would it not be better in principle to help countries in special need by international co-operation on specific problems rather than by making a basic change in the international system in order to meet a special case, however difficult and urgent?

My third question I particularly want to press upon the right hon. Gentleman. Will he give an assurance that the Chancellor of the Exchequer will make a statement to the House on his return about the outcome of the conference and on the policy line taken by Her Majesty's Government at the conference?

Mr. Dell

The right hon. Gentleman will realise, I think, that I am dependent in my answers on a cable from Washington about what happened there at dinner last night. I am sure that my right hon. Friend will wish to make a statement on his return.

As for the right hon. Gentleman's questions, I see no reason why this agreement should affect the interests of this country, and I would not regard this as a basic change in the international monetary system. The right hon. Gentleman will remember that there was a discussion at Zest on whether there should be a system under which gold could be exchanged between monetary authorities voluntarily, if they wished, at prices related to the market price. There was discussion of that proposition with the United States. What last night's agreement appears to amount to is that these gold resources can be pledged against borrowing from monetary authorities rather than sold between monetary authorities. In other words, it appears to be a compromise between what was suggested at Zest and the well-known American position. I do not think that it represents a basic change in the international monetary system.

Mr. Norman Lamont

Is the Paymaster-General aware that, although the United States Treasury has indicated that this is to be interpreted as a move towards the phasing out of gold, it will also be very much welcomed by those who believe that it is only realistic that gold should have an important part to play in the world system? Does not the Paymaster-General agree that once one has moved to the stage of allowing gold to be used as collateral for loans and once the gold might actually be transferred to the people who are lending the money, it is now only logical that central banks should be allowed to buy gold on the free market?

Mr. Dell

The general intention of the Committee of Twenty and the Group of Ten, as I have said, is to reduce the rôle of gold gradually to phase it out of the monetary system. There has never been any intention that the gold that exists in the reserves of member countries should not be available in some form in appropriate cases. Here is a particular case in which an agreement has been made which assists a particular country in difficulties.

Mr. Duffy

As this is obviously an end to the policy of demonetisation of gold, may I push a stage further the question posed by the hon. Member for Kingston-upon-Thames (Mr. Lamont) and ask my right hon. Friend whether any instructions have been given to the Bank of England about gold purchases?

Mr. Dell

No, that does not arise out of this Question.

Mr. Tugendhat

Is the right hon. Gentleman aware that his statement will look most extraordinary when read in the cool light of day? What has happened is that this decision about gold is in many ways a historic decision. It may seem only a transient matter, but it is a reversal of a long trend towards the demonetisation of gold and is obviously a major step forward. One recognises that the right hon. Gentleman cannot make a definitive statement at this stage, but to talk of minor technical points needing to be ironed out shows, it would appear, a total misunderstanding of the importance of what has happened. Can the right hon. Gentleman give any indication to the House of what the present Government's attitude might be towards setting a value on gold should it be used to any great extent? Does he not also agree that, in the light of the persistent policy of British Governments to run down our own gold holdings, to say that this decision has no effect—or words to that effect—on this country really is a misrepresentation?

Mr. Dell

This arrangement in no way introduces an official price for gold. As I have said, there has never been any idea that those countries which have gold reserves should not be able to use them in some way in appropriate cases as part of their own liquidity. Here was a case where it was necessary to make a decision in order to help a particular country. I hope that it will achieve that objective. That is the significance of the decision.

Mr. English

Does my right hon. Friend realise that when he uses the phrase "the official price of gold" all that he means is that any of us may sell something to anyone else at less than its market price? Does he recall the great arguments which went on originally before a free market in gold was created about the assistance that raising the price of gold would give the economies of Russia and South Africa? What is his view on this step in the light of those arguments?

Mr. Dell

One of the problems about gold is precisely that it is unequally distributed throughout the world. The developing countries have taken the view that to raise the price of gold would simply enrich the rich countries. One of the troubles is that no one knows what the free market price of gold would be if the central banks were selling it. It might be well below the current market price.

Mr. Hordern

Does the right hon. Gentleman accept that many of us feel that the place of gold has now been realistically assessed and will be found to be restored to a value which will become more widely accepted? Will the right hon. Gentleman also draw the attention of his right hon. Friend the Chancellor of the Exchequer, when he returns, to the need for an authoritative statement soon on some form of institutionalised and international control of the growth of the Eurodollar market itself?

Mr. Dell

I shall draw that point to my right hon. Friend's attention.

Mr. George Cunningham

Whether or not we agree with this decision, ought we not to congratulate the Government of France on one further victory along their consistent path over the past few years? Can my right hon. Friend say which of the members of the European Community will have the nominal and effective value of their total reserves most upgraded by this decision?

Mr. Dell

I think that the amount of gold in the reserves of different countries is fairly well known.

Mr. Heath

Is the right hon. Gentleman aware that we cannot accept that this is merely a small technical matter which was decided over dinner? It is a matter of considerable importance. Can he say what is the precise, logical difference between gold as collateral at market prices against international loans and revaluing all reserves, including gold, at market prices? Once gold is used as collateral at market prices, there is no reason why gold in reserves should not be revalued at market prices, which would be a major change in the international monetary system.

Mr. Dell

The value of gold as collateral will have to be discussed between the borrower and the lender. In this case, that will have to be the position as well. It is not possible for me to say what that value will be. All that I can say is that this decision does not mean that there is now a new official price for gold.

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