HL Deb 06 June 1934 vol 92 cc849-73

had the following Notice on the Paper:—To ask His Majesty's Government—

  1. 1. Whether they intend to deal in the near future with the whole question of foreign exchanges;
  2. 850
  3. 2. Whether they propose to introduce legislation to prohibit credit facilities to defaulting foreign Governments who have made no arrangements for the liquidation of their debts or the payment of the interest thereon;
And to move for Papers.

The noble Earl said: My Lords, the two questions which stand in my name have been placed on the Order Paper because a large number of people, both in this country and outside, are greatly disturbed at the situation which has come about over the question of foreign exchanges. I think it is common knowledge that practically every chamber of commerce, not only in this country but in other parts of the British Commonwealth of Nations, has passed a resolution very much in the same tone as that passed by the London Chamber of Commerce, in which they expressed the opinion that the question of dealing with these foreign exchanges is one of outstanding importance. The resolution of the London Chamber of Commerce in its last paragraph says that: International money payments, whether in respect of interest or debts or reparations, can only be received in the form of goods, or services, against which no corresponding export has been made. I do not want to give a large number of examples, but I am in a position to state the case of one large firm which was asked by a foreign country to quote for goods which they desired to purchase in this country, and when the people in the foreign country were asked for security of payment for the goods which the English firm were able to supply, they said they were extremely sorry but the goods could only be paid for in the currency of that country, and that currency could not leave the country. The manufacturers themselves are obliged to keep up the efficiency of their works, and, as we all know, when the depression came in 1931 every one did his best to help the country, and has gone on doing so. The firm whose case I have quoted have done their utmost to keep their business together, but, owing to the fact that their export trade has decreased to such an extent, they have been obliged to go into liquidation, with the result that nearly 2,000 men have been turned out of employment.

Perhaps I may quote a very eminent foreigner who spoke to me, and who is not unknown to members of His Majesty's Government who attend the international conferences, though I cannot give his name. He said that this was the only country in the world with a stable Government at the present time, and, difficult as the subject of the exchanges was to tackle, he believed that we were the only people who could initiate any discussion upon it with the other countries of the world. His Majesty's Government initiated the Economic Conference and perhaps most members of His Majesty's Government, or any Government which was in power in this country, were getting just a little bit tired of conferences, because even if we tried our hardest we were not met quite with the same sympathetic support from the other side. Speaking on the question of the last Economic Conference, he said that although it had failed to a certain extent—perhaps entirely—he believed that every country that took part in that Conference desired it to be a success. It seems that a paragraph which appears in the journal of the London Chamber of Commerce rather states the position when it says that general international agreement had so far not been materially successful, and adds: There probably never was a time when there was so much fear, suspicion and hostility among Continental nations. There is no general desire that their neighbours should be prosperous, because confidence is lacking. We always seem to be trying to pull chestnuts out of the fire, and I suppose it will be our task again, if anyone has to do it, to try to deal with the stabilisation of finance.

A very curious position has arisen over these foreign exchanges. Some of us know—and this was also placed before me by a very eminent industrial firm in this country—that some of our undertakings which absorb a very large amount of British money have actually declared dividends on their undertakings and yet, owing to the varying action of the exchanges, these dividends have never been paid in this country. They have been declared on the condition that the exchanges shall improve. I do not suppose such a thing has ever happened before, and I hope it will never happen again. It struck me very forcibly that the Chancellor of the Exchequer, who is always extremely anxious to get as much money as he can, probably would be very glad when that condition of affairs ceases, because he loses revenue from Income Tax. It may be argued, I do not suppose with much force, that those who invest their money from this country in foreign countries had better not have done so; but without the support of our nation a great many of the younger nations would never have come to the prosperity that they did.

I come now to the second Question, and after what has taken place in the House of Commons and what I have seen in the newspapers, I feel I must be very guarded in what I say. One does not wish in any kind of way to stigmatise any foreign country, whatever our thoughts may be on the subject. At the same time I must thank the noble Earl who will reply, for sending me a copy of the resolution of the Economic Conference. In paragraph 2 it says: The conditions in the debtor countries vary considerably and it is not possible to lay down a uniform treatment applicable to all cases. But debtors should make every possible effort to meet the service of their debts and to fulfil their contracts. It is indispensable, indeed, for the restoration of credit that contracts should be respected in the absence of modifications agreed between the parties concerned. I understand that there is an association here—I think it is called the Foreign Bondholders' Association—and it does seem to me that, if we are to achieve success in this aspect, we should have rather more than their backing, considering the amount of British capital that is spread all over the world. If I might name only one country, perhaps the largest of all, it is South America. We have had an example in the last few weeks of a country that has struggled against enormous difficulties, largely dependent on agricultural produce—namely, the Argentine—doing all it possibly can to meet its debt, but at the same time we have got on the opposite side also a country, which never before has defaulted on its foreign loans, not making a very great effort to meet its obligations at the present time.

It does seem to those who asked me to speak on the subject that Chile, if I may take that country as an example, considering everything in that country has improved so largely in the last two or three years, might make some effort to deal with the question of its foreign loans. In yesterday's newspaper I noticed that they have dealt with their Treasury bills, but that does not of course include loans by foreign countries. There is another country which I am glad to see has moved in the matter and which I was told yesterday, as a matter of fact, had been urged to move more quickly, owing to the fact that these two very insignificant Questions of mine had been on the Paper for the last month, and that is Greece. I do not suggest what caused the delay in this case, because that would mean bringing in the name of a foreign country. Probably most of us know the cause, but I think it best not to mention it in your Lordships' House.

The condition of affairs which I have endeavoured very briefly to indicate does seem to call for some concerted action, because those who asked me to speak feel that our industries will never prosper until the export trade of this country, and indeed of the countries who owe us money, gets on its feet again. Whatever we may think about various kinds of expedient which have been put into force. they can at best be only palliatives. Until we can get the trade of the world going—and I think we are all agreed in this House that one country alone cannot do it—until we can get some concerted action I feel that we shall never get to prosperity and the countries that owe us money will not get to prosperity. It is for these reasons that I have placed these two Questions on the Order Paper, and I beg to move for Papers.


My Lords, I think it will be agreed flat the noble Earl has performed a great service in putting these two Questions, which are of such paramount importance, on the Order Paper. My noble friend Lord Sanderson has been watching this matter, and has asked me to say a few words on behalf of the Opposition in regard to it. The two Questions that the noble Earl has put down raise matters that bring up principles on which opinions cut across all Party frontiers and I do not think any noble Lord of any Party could say that he was speaking for even the majority of his Party in all the views he gives on this question; but I can say this on behalf of the Labour Party. This matter of the exchanges has been very closely discussed in the Party, particularly since the events of 1931, and has been the subject of very close examination by the best committees we could appoint. We are very firmly of opinion that much more energetic steps should be taken by His Majesty's Government, starting with the British Empire and with what I would call the economic British Empire, which I will explain briefly in a moment, to bring about some stability in exchanges.

To-day the merchant cannot possibly tell what he is going to get for his goods in sterling values at the time they are delivered and paid for. The buyer of raw material is in a similar predicament. You have to-day people buying forward from foreign exchanges to cover their commitments in that way, and it is one of the most disturbing factors in world trading conditions. We have been pressing as a Labour Party for more energetic action so that we may get some stability of the exchanges as between country and country. The level of the exchange does not matter so much. Stability is of more importance. I think we have learned a great deal since the panic days of 1931, when the Prime Minister stumped round the country waving bundles of German marks, saying that they were worthless, and that that was what the pound sterling was coming to, and frightening the wage-earners and business men wholesale. We have progressed a great deal since then.

To-day you have the extraordinary anomaly of a very great Exchange Equalisation Fund used alternatively for keeping the pound from rising against the dollar and the franc, or, as at present, to prevent the pound from falling too rapidly. I repeat that I think it is agreed that the level of the exchanges does not matter, but what does matter is to have stability, so that merchants and traders may know where they are. How could this be brought about? Surely we could have been much more energetic with regard to our own Dominions; at any rate we could have ensured a sterling union there. But things are now better. The rupee is pegged to sterling. Even the Egyptian pound is pegged to sterling, and the South African Union, having gone off gold, makes the position easier. Starting with the British Empire, if we could get a stable unit of values represented by the pound sterling, which is now for this purpose fortunately off gold, it would be of tremendous advantage. If you like, fix it at the value of 100 principal commodities—wool, wheat, cotton, copper and other principal Empire products—and keep it stable in that way. That would be of tremendous advantage to world-trade and particularly to our Empire trade.

Then we have the economic empire. By that I mean the other countries who went off gold with us, who do a tremendous trade with us, and keep their currencies as far as they can stable with ours, and who are great buyers and sellers with us. These countries include our principal customers, Scandinavia, Portugal, the South American countries referred to by the noble Earl, Finland, and so so. We should bring those countries into association with the British Empire in making a great sterling union with a stable unit of exchange between them. I think if the matter had been handled properly when the United States departed from the gold standard with the object of raising the wholesale prices of primary commodities, as recommended by the Macmillan Committee and as canvassed at the World Economic Conference referred to by the noble Earl, possibly the Americans would have come in and made a dollar sterling block, which would have covered a very great portion of the world and would have been of great advantage to commerce.

So far as I can make out, apart from the abortive World Economic Conference into which we went (I say it with great respect to His Majesty's Government) without any real preparation at all, and still more without any real policy which was understood by the people who had to take the decisions—apart from that, we have allowed this matter to drift. We operate our Exchange Equalisation Fund in secret on no known or disclosed principle. At the present moment the pound is at a rather low level; it has been going gradually down. That should not alarm any one, because it is to our advantage in many ways. There are many reasons for that, but I think we have a right to complain, as an Opposition, of the lack of a definite and energetic policy on the part of His Majesty's Government with regard to this very great problem.

With respect to the present fall of the exchange, I understand that that is not the result of any deliberate policy on the part of the Treasury and the Bank of England. It is caused by the withdrawal of short-term funds from London. One of the causes of the 1931 crisis was not the wickedness of the Labour Government, as the noble Marquess, Lord Salisbury, hinted in his very interesting speech the other day; the reason was largely due to the fact that we had an enormous sum in short-term foreign loans held in London which had been, as your Lordships know, re-lent in a great many cases to Germany, Austria and other countries at a higher rate of interest. There were also certain other factors into which I need not enter. Foreign lenders became alarmed and withdrew their funds. We lost gold, and the result was a crisis, a panic, and the fall of the Labour Government. That was not the fault of the Labour Government at all. It was the fault of a system which led to the accumulation of these very substantial sums of short-term money in London. Now the information that we have at present is that these short-term funds have been accumulating again and are now practically up to the 1931 level. To-day we do not lose gold, because the export of gold is prohibited, but the exchange goes down as these funds are withdrawn. I do not say this because there is anything to alarm us; quite the contrary; but it is part of the picture as showing the lack of policy.

The noble Earl referred to the prohibition on foreign lending, and deplored the fact that we were not now allowed to develop distant primitive countries as we did in the past. I entirely agree, if I may respectfully say so, that it is a great pity we cannot use our surplus funds to do as we did in the past to develop overseas countries and particularly those in our own Empire. What is the sense of keeping such a tight hold on the export of capital, and at the same time leaving this immense accumulation of short-term money in London, which at any time may be withdrawn to the embarrassment of our exchange? The present deposits, I understand, are in the neighbourhood of £450,000,000, and we are back practically to the 1931 level. In 1930, when the Macmillan Report was published, one of the most prominent findings was the danger of this short-term loan position in London, and the prophecies of that Committee were unfortunately fulfilled.

Therefore the two suggestions that I propose to make to His Majesty's Gov- ernment on behalf of my noble friends are, first of all, the necessity of a really energetic policy to see if we can get a great sterling block with all the countries who are prepared to make a stabilised unit of exchange, which would be of great advantage to every one concerned; and secondly, that this question of the short-term loan position in London should be examined with a view to some better form of control over it. I think the noble Earl must have rather slipped up—if I may use such an expression—when he put down the second part of his Question with regard to the suggestion that countries in default should not be given credit facilities. We apparently are going to find ourselves in that position after June 15 vis-a-vis America. I do not want to say very much about that, and I am speaking personally, but I am bound to say that I agree very much with what fell from the noble Earl when he expressed grave doubts and apprehensions about our policy of incurring a default. We are a very great creditor nation and I think it will be a very serious matter indeed if we are adjudged defaulters on our American debt.

I hope I have always been consistent in this matter. I have always said that in 1923 Mr. Baldwin could really have done no other than make the settlement he did make with the United States of America. He has been tremendously attacked for it but in all the circumstances of the time I believe it was imposible to make any other settlement than that. Now, apparently, we are going to be adjudged defaulters. I must say that I regret it very much indeed. I have read very carefully the pronouncement of the Chancellor of the Exchequer, I have read the White Paper and all the Notes that have passed, and I have heard many debates in another place on this question. I think it is a very great pity that this situation has been allowed to arise. It is partly because we have not discussed the whole question of prices and exchanges in Washington with the present President of the United States and his predecessors. We have allowed the matter to drift on, and we see the present result.

I am going to say—I do not know that shall carry all my, noble friends with me—that it would have been better on this occasion to have paid. Eventually the money goes in goods. It may have meant a fall in the sterling exchange, but if it was a controlled fall in the exchange that would not really matter so much. I consider that the question has been grossly mishandled in the higher interests of the British people. I make these last observations with great diffidence because it is a difficult subject and it leads to sharp conflict of opinion in all Parties. But I must say I think the noble Earl is to be congratulated on bringing forward this extremely important Motion. I for one await with the greatest interest the reply of the representative of His Majesty s Government and the remarks of other noble Lords.


My Lords, I think my noble friend has rendered a service by bringing this matter before your Lordships' House, although I must admit that I see great difficulty in expecting an answer which would be of any value at this moment from the Government. However, they have a very ingenious representative in the noble Earl and probably he will find something to say which will be of assistance. There can be no doubt of the importance of the subject, especially to a country like this which depends for so much of its prosperity on its exports. It is unnecessary in your Lordships' House to expatiate on the difficulties with which we are confronted at present by reason of control and restrictions of exchange, tariffs, quotas, and various other expedients which make the ordinary medium of exchange impossible. Whatever control we may use with regard to money or currency, we cannot forget that it was in order to facilitate the process of exchange that money was invented. Now we have the difficult situation that payment cannot be made.

One very good instance was given by my noble friend and cases might be repeated almost ad infinitum. It is useless to export goods, because if you part with money from this country, whatever payment is to be made accumulates in another country and is not able to be transferred here to the exporter. Consequently, the exporter is kept out of his money. I do not at this moment propose to discuss all the difficulties caused by depression in trade and its effect upon currency. The only thing I would say—I do not profess to be an expert, but I have some practical experience of the subject, and I have read much that has been written upon it —is that certain well-known economists attribute the whole difficulty that has arisen in our trade—that is, world trade, I am not referring specifically to this country—to currency, that is, to monetary troubles. That would lead one into a long discussion into which I am not going to enter now, but what is important is to know from the Government whether it is possible to take any steps, and if so, what steps the Government propose to take, in regard to stabilisation of exchange.

Personally I am under no delusions with regard to it. I suppose it is axiomatic to say that stabilisation must be preceded by greater certainty than there is at present, especially in relation to War Debts and costs and prices. Indeed, until you get a greater return to prosperity in the world it is quite impossible to have that confidence in the value of your medium of exchange which would enable the Government of any country to fix upon the value it would put upon its own currency for the purpose of stabilisation. All that depends upon greater certainty in regard to prices. Where you have these very low prices for commodities it inevitably must result that no stabilisation can be made until prices have risen and until also there is some greater certainty. I suppose that in truth one might say that at the bottom of the difficulties with regard to stabilisation is lack of confidence. That lack of confidence arises largely from low prices and uncertainty of what the future is going to bring, and leads, as sometimes seems to many who have studied the question, to a consequent exaggeration in the minds of those trading as to what is the future of their own exchange or the exchange of the country with which they are dealing.

I realise the difficulty of the Government taking any steps until there is greater certainty, but, after all, there is in the world at present a domination of sterling. I would like to know from the noble Earl who replies for the Government whether it is regarded as quite impossible to take some preliminary step for the purpose of arriving at some measure of agreement, not necessarily a final agreement. I see the obstacle to that, but some step must be taken to put us in the way of arriving at stabilisation, which must be a long process. I do not wish to take up the time of your Lordships in discussing this difficult subject, but I am anxious that the noble Earl should give us some reply in regard to it so far as he possibly can, and give us some encouragement, because all those engaged in trade, and especially in export trade, do realise the extreme difficulty of making contracts ahead in the existing conditions of great economic nationalism throughout the world.

I am not going to be guilty of discussing the subject which was referred to just now by the noble Lord, Lord Strabolgi, especially at this moment. All that I would desire to say with regard to it is that I do not agree with him in the observation which he made that the Government are to blame, as I understood him to mean from his remarks, for not making the full payment which it was incumbent upon them to make at the present moment. For myself, I would be most anxious, as I am sure would all your Lordships, that some payment should be made for the purpose of impressing upon the American public and the world generally that this country has not entered into the category of defaulters. Had it been possible to arrange with America, I feel quite sure that the Government would have availed themselves of that situation—if they had only had some indication that it was possible. I do not know the exact details of what has passed between this country and the United States of America with regard to it, but I feel that if the Government had done what has been suggested by the noble Lord, Lord Strabolgi, and paid the amounts due up to the present—that is to say, not token amounts, but the whole of the instalments payable up to now and which would be payable on June 15 and again on December 15 of this year—the consequence would have been such a disturbance in the world exchanges, inasmuch as we cannot pay in goods and services, that we should have had a recurrence of, or at any rate some return to, the depression from which we in this country have, to some extent at any rate, emerged since the year 1931.


Would the noble Marquess excuse me if I interpose? I am sure that he does not want to misrepresent me, and he has not misrepresented me very greatly, but it is really important that I should explain that my complaint is that the present situation has arisen in which we are faced either with this enormous payment or with default. I think that with a better handling of the problem it need not have arisen, and we could well have avoided the position of default.


The noble Lord may have greater knowledge on this subject than I. All that I would say with regard to it is that I have understood from the first—and at one time I was in a position to know—that every attempt has been made by this country, not only to get into negotiations but to reach an agreement, in order that we might make an end of this situation, avoid all discussion about repudiation, and come to some conclusion as to the means by which a settlement should be reached. It must be remembered that it does not affect this country only. We are rather inclined to forget that we have given up very large sums of money due to this country, and that we depend for the amounts which we have to pay to America upon other countries—I mean depend in the sense of receiving from foreign countries the amounts which we have to pay to America. That has always been made clear, but it may be sometimes forgotten. If you once assume, as I must assume for this purpose after what the noble Lord has said, that he means the Government might go back to the former stage, that is, seeking to obtain from other foreign countries the money which is due from them in order that this country might be enabled to pay the instalments due to America, then it must be pointed out, as I think the Chancellor of the Exchequer's Note states quite clearly—and it must be undisputed—that that would bring about a return to the difficulties which we have suffered during the last few years and from which we have not yet emerged.

It is useless to talk of paying sums of this character when you realise that they cannot be paid by goods or services. There are various means of overcoming that, but I do not know how the noble Lord or any one else thinks that these moneys can be paid unless payment is to be made by goods and services. But that is entering into a subject which is very delicate at this moment, and the only reason I have made these observations is that I do not think that it is quite fair, controversially, to blame the Government for the situation which has arisen. As I understand from the noble Lord, particularly from the explanation given by him, he thinks that the Government have been remiss in the attempts which they have made in the past.

I am only putting before the House such information and such knowledge as I have. As I have said already, it may not be so great as that of the noble Lord, but I really do not think that anyone can fairly say of this Government, or of any Government of this country, that it has not been ready at all times to make a reasonable settlement, with regard not only to our own Debt but to all Debts; and that is almost a preliminary to anything approaching a world stabilisation, because you cannot have a world stabilisation of exchanges unless you deal with War Debts. So long as War Debts remain as they are, casting their shadows over the world, no one feels certainty as to what his position is. You have those two main items: the difficulty with regard to the outstanding world indebtedness, which is not simple, and then you have of course the trade question of prices and of getting the right balance of structure in prices, which is essential before ever you can reach stabilisation. I shall hope to hear from the Government that some attempt may be made and that some information may be given on the subject.


My Lords, I should like to thank the noble Earl, Lord Liverpool, as the other noble Lords who have spoken have done, for putting down this Motion this afternoon, because there is no one who is in any way connected with trade or business who does not feel the great trouble which is caused by these fluctuating exchanges in all parts of the world. I do not wish to go over again the points which have just been so clearly expressed by the noble Marquess and by the other noble Lords who have spoken, but at the same time, when the noble Earl asks the Government whether they intend to deal in the near future with the whole question of foreign exchanges, then I think he asks the Government a question which they are unlikely to be able to answer, and I do not expect any definite reply from the noble Earl who is going to answer for the Government upon this subject.

I do not understand how it is possible to-day, with the monetary conditions which exist in different parts of the world, to stabilise what we call foreign exchanges. With certain countries on gold, with other countries off gold, and with exchanges fluctuating from day to day, largely due to the condition in one country, I do not see how it will be possible to do anything of that nature at the present time. I think there is no doubt that so long as the United States of America remains in the state of uncertainty in which she is with regard to the value of her dollar, it will be quite impossible to come to any parities between the different principal countries which would have the effect of stabilising the exchanges. At the same time the noble Marquess, Lord Reading, did refer very shortly to another matter which I think is of the greatest importance, and with regard to which I believe something could be done. The Empire countries, to-day, are in a much better position for stabilising their exchanges than any other countries in the world. They have a parity, to-day, or proportionate values vis-a-vis the United Kingdom, and I see no reason why the Government, even if they are unable to investigate the question of the stabilisation of foreign exchanges with any hope of success, might not be able to do something in regard to the Empire which would make a start in that direction. I think it is quite possible that a sterling union could be created between the different countries of the Empire, and I have no doubt that if such a union were created, under certain conditions other countries, like the Scandinavian countries, who are already working in with the sterling currency, would probably be prepared to come into this union.

I understand that even with regard to that point there is still some difficulty; that until central banks are established in all the different parts of the Empire it would be very difficult to create the necessary machinery in the different parts of the Empire, for the purpose of maintaining such exchanges in a stabilised condition. But at the present moment Canada is in progress of creating a central bank; New Zealand has already done so; South Africa already has one, and also Australia; and India is in course of creating a central bank. Therefore, within a very few months there will be the foundation of the possibility of creating a sterling union within the Empire, and at all events of eliminating, so far as a quarter of our world's trade is concerned, the difficulties connected with the exchanges. That is the point which I really wish to make in connection with this question, and I wish to ask the Government whether they can see their way at least to take that matter into consideration, even if they are not able to deal with the question of foreign exchanges.

With regard to the last part of the Question on the Paper, I cannot agree with the noble Lord, Lord Strabolgi, that these questions of American Debts have been grossly mishandled. So far as I have been able to judge, and I have followed the matter very closely, as far as one is able to do so, every Government which has dealt with this subject since it arose has treated it in the most practical and most reasonable way. It is all very well to get up here and say, "You night do this, or you may do that," but there have been enormously difficult factors to deal with in the United States itself—factors of which most of us are cognisant, and with which many of us have sympathy. Nevertheless, they have existed, the principal one being that they insisted upon these Debts being paid. I for one have nothing to say against any act of any Government concerned which has had to deal with that matter. Not only that, hut I should like to congratulate the Government upon the Note that was issued yesterday with regard to this subject. It is one of the clearest, most lucid and convincing Notes that have ever been issued with regard to a similar matter. With regard to the question of default, well, if Senator Johnson likes to consider that this country has defaulted that is his own affair. I do not believe that the large majority of his countrymen will share that view. Those are the few remarks that I wished to make in regard to this question.


My Lords, some of your Lordships have thanked the noble Earl for having put down these Questions. I confess that I hardly share that feeling, because although the noble Marquess opposite was more than kind in the re- marks which he made about myself, I cannot think that I have the real knowledge to deal with a question of such great complexity, and I am well aware that there are many of your Lordships who have that knowledge. I am all the more grateful, therefore, to the noble Marquess for the remarks he made, with which I entirely agree, and I am sure your Lordships listened to them with the greatest possible interest.

With regard to the question of War Debts, your Lordships are well aware that the Government have always separated entirely the question of War Debts from debts of the ordinary character. It has always been made quite clear, I think, by every Government in this country, that War Debts were brought about by non-productive expenditure, and that therefore they are in a separate category. That point is not raised by the Question on the Paper, but it was raised by the noble Lord opposite. I agree, again, with the noble Marquess, that the noble Lord seems hardly to have followed what has been going on between this country and the United States, and hardly seems to have heard of the Johnson Act, which made it clear that unless the whole debt was paid a country would be considered in default, and that therefore there was no question of making a token payment and not being considered in default, having regard to that Act.

Further, he made no reference, as the noble Marquess did, to the fact that this country is a great creditor country as well as a debtor country, and that, therefore, it would be not only a question of our paying a vast sum to the United States but of our asking our debtors to pay large sums owing to this country. I think any one who realises what these questions of debts are will appreciate that it is putting the whole question of exchanges once more into the melting pot and making it more difficult. So far from our not having tried to come to an agreement with the United States, the matter has been constantly under discussion. Every opportunity has been taken of discussing the matter with the authorities of the United States, and we are still ready, as the White Paper clearly shows, to discuss the matter still further, in order to arrive at an agreement. We have not repudiated the Debt, but merely say that under present conditions while their tariffs prevent our goods going into the country and we find it difficult to render services having regard to their shipping laws, the matter cannot remain as it is at the moment and must be discussed still further with a view to arriving at an agreement.

With regard to the Questions on the Paper, they are matters which have been engaging the attention of the Government ever since it came into office. Your Lordships will remember that the matter was raised at the Economic Conference last year. The noble Lord, Lord Strabolgi, stated that the Government went into that Conference without any preparation and without any policy. He appears not to have read the Paper produced and the statement made by the Chancellor of the Exchequer, which in fact dealt with this particular point. The Chancellor of the Exchequer on June 14, talking of the objectives of the United Kingdom Delegation in the financial sphere and the efforts which we hoped would be made—namely, to get a recovery in prices and greater stability in the relative value of currencies—said: There remains a third objective to which the United Kingdom Delegation attach the greatest importance—namely, the abolition of exchange restrictions. At the Stresa Conference held nearly a year ago"— that is to say, in 1932— and at many other international meetings resolutions have been passed condemning exchange restrictions in general terms. But the United Kingdom Delegation recognise that in practice exchange restrictions will not be abolished until the exchange difficulties which have given rise to them have been overcome. The United Kingdom Delegation trust that the Conference will take positive action to attain this end. A rise in wholesale prices of foodstuffs and raw materials, and an increase of world trade would contribute powerfully to reduce exchange difficulties, and would assist in bringing to an end both standstill arrangements in respect of short-term debts, and transfer difficulties as regards external indebtedness as a whole. The Chancellor went an to point out that the exchange and transfer difficulties would be greatly diminished by the resumption of normal international lending, and finally put forward as a positive proposal that the Conference should examine some means by which those countries which need financial assistance in order to enable exchange restrictions to be abolished could under appropriate conditions obtain it from those countries which possess an available surplus of gold reserves. In a sentence, the Government felt that exchange restrictions were the result, and not the cause, of the present world situation. The main cause, in the view of the Government, is the tremendous fall in prices, particularly of agricultural and primary products, with no corresponding fall in costs. That was clearly brought out by the noble Marquess opposite, and it is a view with which the Government entirely associates itself.

There are three ways of obtaining an equilibrium in prices. The first is by depreciation of currencies in terms of gold so as to keep them stable in terms of goods. The second is by a policy of deflation designed to bring down costs into equilibrium with reduced prices, and the third is by an increase in prices brought about by concerted action between the various countries in their monetary and credit policy, and also by attacking the problem from another angle and reaching agreement for the regulation of output of primary commodities. The third policy is the one which has been followed by His Majesty's Government.

Your Lordships will realise that, so far from the Government having done nothing, they are attempting to attack this question in a variety of ways. Your Lordships know far more about these matters of trade than I do, but we are endeavouring to get an increase of consumption in regard to milk under the milk policy of the Government, which was recently announced in another place. We are endeavouring to raise prices in regard to wheat by the wheat quota arrangements and by the wheat arrangements which are being still discussed by various great producing countries, which countries we still hope may be able to come to an agreement among themselves. That, as your Lordships realise, is not a matter in which the Government can help very greatly, because we are a consuming country and not a, producing country in regard to wheat. Similarly in regard to rubber. There, again, there are restrictions proposed with a view to raising prices. Our belief is that until the great producing countries find that the price which they get for their products enables them to get some return over the costs entailed in producing them, you are not going to get any real increase in trade, or any equalisation in the exchanges or improvement in the trade of the world.

Wherever trade restrictions exist, throughout the world their effect on our export trade is carefully watched by the Government Departments concerned. Further than that, the Government has set up a Committee which was referred to by my noble friend Lord Liverpool, which includes representatives of the Association of British Chambers of Commerce, of the Federation of British Industries, and of banking interests, to maintain full and constant co-operation between all the various interests concerned.

My noble friend was good enough to tell me some of the points that he was going to raise, and therefore I have been able to get some information about them. Your Lordships, of course, would not expect me to go into the difficulties of exchange between this and every other country, but I propose to deal with two that my noble friend -touched upon, the cases of the Argentine and Greece. This country, as your Lordships know, imposes no exchange restrictions, and it also remains the world's best customer. The noble Lord opposite referred to the large number of short-term deposits which are made in this country. I do not know how he proposes to keep them out. The bank rate at the present moment is at an extraordinarily low figure, and yet capital keeps on coming into this country. Why is it? The reason is that foreigners all over the world have confidence in this country and in the Government of this country, and the reason why they withdrew those balances in 1931 was entirely the fault of the Government of the day, because their action at that time destroyed the confidence which foreigners had in this country, and they withdrew their balances.


Why are these short-term deposits being withdrawn now?


Because there are other countries which now are felt to give a sufficiently secure return, and, as the noble Lord pointed out, other countries give a far higher rate of interest than does this country. Therefore foreign deposits are quite certain to leave this country as confidence returns throughout the world and the higher rate of interest attracts capital away from this country to countries which give a higher rate than we do.

As regards the Argentine, which is one of our largest foreign markets, by the Anglo-Argentine Agreement of May, 1933, it was provided that the sterling arising from our imports from the Argentine should be made available for the sterling requirements of British creditors and British export trade and British companies, after setting aside a reasonable agreed sum for the service of the Argentine Government foreign debt due to other nations. As the result of the Agreement our frozen debts prior to the Agreement have been largely liquidated, either in cash or in bonds which command a satisfactory price, and we have increased our share of the Argentine's imports. As regards Greece, I think my noble friend referred to a company which had sold some goods to a foreign country, by which I think he meant Greece.


I wished to avoid the mention of any foreign country; I did not think it tactful.


I think it would help matters if I referred to one or two countries. I need hardly say I am not going to make any attack on them. This country is a very good customer of Greece, particularly in regard to currants, and it is certainly entitled to fair treatment as regards our exports to that country. When Greece first imposed exchange restrictions the amount of commercial indebtedness to this country was very considerable, and the Greek law passed in April, 1932, providing that foreign commercial debts should be repaid by instalments of 10 per cent. every six months undoubtedly caused much hardship to British creditors. With the lapse of time this volume of frozen indebtedness has no doubt been reduced, but in the meantime the position of Greece as regards her foreign exchange reserves has greatly improved, and it would seem both reasonable and possible that a more liberal treatment should be accorded as regards the outstanding commercial debts due to this country.

In regard to current trade, the chief difficulties, so far as the Board of Trade are aware, arise from import restrictions rather than from exchange restrictions, but from time to time various cases arise in which it appears that this country is not receiving the equitable treatment to which it is entitled, and of course these cases are at once taken up with the Greek Government in order to ensure that no injustice is done to British interests. If the particular case to which my noble friend referred is one that he would like to give me, I can assure him the Board of Trade will do their utmost to have. the matter enquired into further.

The second Question on the Paper, in regard to legislation to prohibit credit facilities to defaulting foreign Governments, is of course at the present moment rather an academic question, because an embargo exists against all foreign loans. As a matter of fact if my noble friend will look at the Stock Exchange List he will find that the price of foreign loans to Governments which have defaulted is at such an extremely low figure that they would find great difficulty if they tried to raise another loan in this country. As my noble friend knows better than I do, London has always taken the view that a debt should be repaid before a new debt is incurred, and that would no doubt be the policy which the investors in this country will continue to hold in the future as in the past. As regards the World Conference resolution which he quoted, the Council of Foreign Bondholders which has been in existence since 1868, has rendered great service to British holders of foreign bonds. More recently a new body, the League Loans Committee, has been formed under the chairmanship of Sir Austen Chamberlain, and that has dealt with conspicuous fairness and success with the question of various loans issued under the auspices of the League of Nations.

My noble friend referred to the case of chile. As he said, Chile has never defaulted before on her foreign loans. For over one hundred years Chile had punctually met her foreign debt obligations, but in August, 1931, she was compelled to suspend payments completely on her external debt. This external debt amounts to approximately £260,000,000 sterling, out of which the Government debt amounts to some £90,000,000 (requiring an annual payment of over £8,000,000), of which about one-third is held in Great Britain and nearly two-thirds in the United States of America. The reasons for the inability to continue foreign debt payments were partly budgetary and partly lack of foreign exchange, but in both cases the root of Chile's difficulty was that over 80 per cent. of her exports consisted of nitrates and copper for which the demand had fallen off to an unprecedented degree. Chile had in fact put four-fifths of her eggs into one basket, and the basket had proved to have a large hole in the bottom of it. The difficulties of her situation were apparent to all, and it was generally recognised that her default on her foreign debt was for the time being inevitable.

It is happily true that in recent months there has been an improvement in the position of Chile, and an agreement with certain short-term creditors involving an annual payment of £60,000, was recently announced. It is to be hoped that this improvement will continue, and Chile's admirable record in the past would appear to justify the belief that Chile will approach her long-term foreign creditors as soon as she is in a position to make some definite offer to them. But our view is that Chile still has very great difficulties to face, and perhaps these have been somewhat minimised by some of the accounts given of that country lately in the Press. Her exports have increased somewhat, but chiefly as the result of clearing arrangements under which Chile does not have the free control of the foreign exchange resulting from her exports. There is a very large volume of frozen commercial indebtedness which it has not yet been possible to liquidate, but a beginning has been made, and quite recently the Chilean Minister of Finance allocated approximately £64,000 to liquidate frozen peso balances held by United Kingdom exporters and others at the rate of 125 pesos to £1. remains to deal with the problem of sterling debts owed to United Kingdom creditors who have, owing to the Chilean legislation in force, not yet been paid by their debtors the pesos required to cover the debts at the present rate of exchange.

We are asking the Chilean Government to take the necessary measures to enable a satisfactory settlement of these sterling debts to be reached, and this is a matter to which His Majesty's Government attach great importance. The resumption by Chile of payments to her foreign bondholders is, of course, also a matter of the greatest interest to this country, but the prospect of this must clearly depend on the revival of the market for her chief exports—namely, the nitrates and copper to which I have already referred. So far from the actual level of exchange not making any difference, I can assure the noble Lord opposite that that is not the view of those who are creditors in respect of Chilean bonds or of Chilean trade. One of the chief difficulties is of course to find a fair level between the creditors and debtors of Chile. My noble friend Lord Liverpool referred to the confidence which is lacking in Continental countries. That of course is a matter which very definitely affects the exchange, and as he knows, we have been doing our very best to improve the feeling throughout the Continent, but the situation at Geneva at the present moment has not been very helpful in that direction.

The noble Lord opposite referred to the Exchange Equalisation Fund and I think, riot for the first time, his Party has not quite grasped what the Equalisation Fund is. It is an attempt to try and keep the pound sterling at a fair level with other currencies. It is not used to depress it greatly one moment and to elevate it another moment. It is used to equalise it as far as we can throughout the year. As he knows, wheat and other products will come pouring into this country during the next four or five months from Canada and elsewhere, and during that time sterling is likely to be flowing out. That is probably a time when the Equalisation Fund may be used—I am not in the inner secrets of how it is used—to keep sterling up. At a later moment, when the flow of wheat and raw products begins to slow down, then it may be that the Equalisation Fund will be used in the opposite direction. But so far from trying to depress sterling as against either the franc or the dollar, that is not the purpose of the Equalisation Fund. It is an attempt to try and smooth out fluctuations between the pound sterling and other currencies. Of course that becomes impossible when other nations take on great changes in their currencies. We have recently seen what happened in the United States. Then of course any possibility of getting stabilisation of exchange as between this country and the United States is bound for the time being to come to an end.

The same thing applies in regard to the British Empire. My noble friend Lord Elibank raised the question of having a sterling area which would include the whole of the Empire. As he said, quite rightly, it is impossible to get a sterling area until you get a central banking system in each country, but a good deal more than that is required. Until the Governments of the various parts of the British Empire agree to unite their policy in regard to sterling on the same basis it becomes impossible really to get sterling pegged at a definite level.

I think there is not much further that I can say to your Lordships. I have endeavoured to answer the points that were put forward by my noble friend, and I only wish once more to make clear that in the view of the Government the whole question of the stabilisation of exchanges must depend on an improvement in prices relative to the actual cost involved. Once you can get the countries which produce primary products in particular, but all countries too, to put their prices and their costs at a figure which enables them to make a fair profit, then we may begin to look forward to the time when the exchanges will once more become more stable. That is the policy which the Government are endeavouring to pursue, and we hope that we shall be able to obtain some success. I am afraid I have no Papers to lay in regard to the matter because, as my noble friend knows, most of them have already been made public.


My Lords, I do not propose to make a speech in reply, but there is one question I should like to ask the noble Earl. I did not understand what he said in regard to Chile. Do I understand that representations are being made there? I did not quite catch what the noble Earl said about that.


In reply to the noble Earl, I may say that the matter has been taken up with the Chilean Government and His Majesty's Ambassador there is making representations.


I beg to thank the noble Earl for his reply, and to withdraw my motion for Papers.

Motion, by leave, withdrawn.