§ 3.53 p.m.
§ Order of the Day for the Second Reading read.
§ THE MINISTER WITHOUT PORT-FOLIO (LORD MILLS)My Lords, I beg to move that the Bill be now read a second time. This is a very straight-forward Bill, and I will not detain your Lordships long in explaining it. It is to enable the United Kingdom to join in a co-operative effort by ten of the major industrialised countries to strengthen the International Monetary Fund. The detailed arrangements have been set out in a formal decision adopted and published by the Fund last January. For the convenience of Parliament, this has been reprinted in a Command Paper (Cmnd. 1656). Under these arrangements, each of the ten countries that joins the scheme would stand ready to lend its currency to the Fund, if needed. This undertaking is limited by a maximum amount fixed for each country. These amounts are set out on page 10 of the Command Paper. Assuming all the countries join in the scheme, as I am confident they will, the total of these maximum commitments will be the equivalent of six billion dollars—two billion dollars from the United States, one billion from the United Kingdom, and about two and a half billion from the Common Market countries.
Before I mention one or two detailed aspects of the scheme, the first question I shall deal with is why this proposal for increasing the Fund's potential resources is being put forward now. The Fund has, of course, already very substantial resources, which it uses to give financial assistance to its member countries if they run into temporary difficulties on their balance of payments. These resources, which derive from the original contribution made by the members, consist partly of gold and partly of the currencies of each of its members. In practice, however, only comparatively few of these currencies are in demand for drawings, and even among these it may be desirable temporarily for some not to be used. If the Fund is to make the most effective contribution to international monetary stability, it is desirable 272 that funds should flow through the International Monetary Fund from countries in surplus to those in deficit. In other words, countries which need help from the International Monetary Fund should seek to draw the currencies of the countries which have strong balance of payments and reserve positions.
When the Fund started business, most of its transactions were financed from its holding of United States dollars. This was a natural tendency, since the dollar at the time was the most important convertible currency, as well as the strongest. More recently, however, the United States balance of payments has been in deficit, while some continental European countries have been rapidly accumulating reserves. This has been reflected in greater drawings of European currencies from the Fund and much smaller drawings of dollars.
The Fund at present has some five billion dollars in dollars and sterling, but only one billion dollars in the currencies of all the six Common Market countries together. It is obvious, therefore, that in a situation where it is inappropriate for dollars and sterling to be drawn to any considerable extent the Fund has a real problem in meeting all the demands made upon it. The size of these demands may be accentuated by the greater ease with which funds can now move from one centre to another. Such movements themselves can particularly affect the two reserve currencies, although they may affect other currencies as well.
The Fund was able from its present resources to finance the very large drawing which the United Kingdom obtained last August, and which was of great benefit to us. It would, however, have great difficulty in financing a similar drawing by the United States if that ever became necessary, particularly if, at the relevant time, it was not appropriate for sterling to be drawn. The existence of drawing rights in the Fund as a second line of reserves is, in itself, of benefit to confidence. If this is to be fully effective, the Fund must at all times be seen to have access to resources adequate to cope with any likely threat to the international monetary system.
It is for these reasons that the Fund has proposed the scheme which is set out in the White Paper. It would, of course, 273 have been possible for the Fund to wait until the need arose, and then negotiate loans ad hoc with the countries whose currency was needed. This procedure might, however, have involved considerable delays while the necessary appropriations were authorised in the countries concerned. Also, it would not meet the need to demonstrate that the countries concerned stand ready to lend in order to support the international monetary system.
The Fund has therefore negotiated with the ten countries an arrangement under which they will all be prepared to lend on the same terms up to limits fixed in relation to each country's capacity. It is now for each country to take the necessary steps to enable it to lend and adhere to the arrangements. One country—Italy has already done so. It will come into effect when seven countries, with commitments totalling 5½ billion dollars, have adhered, and will then continue in force for four years, with provisions for renewal. In adhering to a scheme of this kind, which will be in force for some years, the participating countries will obviously wish to be sure that they will not be asked to lend at a time when their own external position is weak. It is fundamental to the whole arrangement that countries should be called upon only when their balance of payments and reserve positions permit. In order to safeguard this, the ten countries have reached understandings for mutual consultation whenever the Managing Director of the Fund proposes to them that loans are required. A full record of these understandings is set out in the exchange of letters with M. Baumgartner, which are contained in the second half of Command Paper 1656.
If necessary, there is provision for the participants to vote on whether a lending operation on the scale proposed should be put in hand. The weighting of the votes will be in proportion to the commitments to the new scheme. It is envisaged, however, that participants will seek to proceed by way of unanimous agreement wherever possible rather than by voting. Moreover, the amount to be contributed by any individual country will be outside the voting procedure and will be agreed with the lending country after discussion at the consultative meetings. A further safeguard 274 for the lending country is that if it subsequently moves into balance of payments difficulties of its own it can claim advance repayments of its loan.
Looking at the arrangements as a whole, therefore, we believe they should be directly of great value to the United Kingdom. I do not need to enlarge today on the massive help which this country has received from the International Monetary Fund in the last twelve months. The assistance arranged last August, totalling 2,000 million dollars with the stand-by credit, represented far the largest single operation in the Fund's history. Naturally, we all hope that circumstances will not arise again in which help on this scale will be needed. If it should, however, the new arrangements should ensure that the International Monetary Fund will be able to dispose of adequate supplies of the needed currencies. Thus the arrangements will benefit us as borrower; while, as lender, our liability is so arranged that it will take effect only when we are strong enough to meet it. The provision for early repayment will protect us if our position were subsequently to deteriorate.
There is, however, a wider advantage in these arrangements. They are a demonstration of the willingness of these ten countries to co-operate in supporting the international payments system when necessary. Apart from its technical advantages, the negotiation of a scheme of this kind is an important step forward in international co-operation, and as such it deserves our wholehearted support. I should like to conclude by paying tribute to the initiative which the Managing Director of the Fund, Mr. Per Jacobsson, took in proposing these arrangements and to the hard work done by him and his able and experienced staff in bringing the negotiations to a successful conclusion. I commend the Bill to your Lordships' House.
§ Moved, That the Bill be now read 2ª.—(Lord Mills.)
§ 4.6 p.m.
VISCOUNT ALEXANDER OF HILLS-BOROUGHMy Lords, we are much obliged to the noble Lord, Lord Mills, for the manner in which he has explained this Bill. So far as the amounts of money involved are concerned, it is a 275 very big question. Fortunately for me, and for the Minister, who has to pass on to us what has been done by the Government, I am not leading the Opposition in a House which has any monetary control of any sort or description. Therefore, I can be brief.
It seems to me that the arrangements set out in the Bill are as reasonable as one can expect in the circumstances. I hope the noble Lord heard me give a slight cheer when he referred to the great benefits which we had received from the International Monetary Fund over the past years. It is a curious situation after ten years of Conservative finance, but there it is. It is very strange, but it seems that in order to make progress in finance and production a country needs to lose a war, not win it. We all remember the extent to which this country, the United States and certain other countries did our best, in most difficult circumstances after all our war expenditure, to bring liberty to other people and then to help them in the process of change-over. Now the noble Lord has drawn our attention to the fact that certain countries in Europe, including ex-enemy countries, are in a financial position which enables them to give assistance in this scheme. It is just as well to educate them into such schemes of international co-operation. But it is a curious result of two great world wars; and at the end of all the decades I have spent in political life it strikes me as being an extraordinary position. Nevertheless, it is quite clear that we cannot meet our modern needs unless we get international co-operation of this kind. Therefore, however much I should like to pull a few political legs about the situation, I am bound to say that the Bill is right.
§ 4.9 p.m.
§ LORD GRANTCHESTERMy Lords, I should also like to thank the noble Lord, Lord Mills, for the lucid manner in which he has explained the purpose of this Bill. It leaves little to be said, were it not for the fact that the work of the Fund is more important, far-reaching and interesting than would appear from the short Bill which is before your Lordships' House this afternoon. In participating in the work of the International Monetary Fund, I think we are doubly fortunate. The 276 Fund has a set of rules, or obligations upon members, which govern its actions, the most important of which is that, before the Fund assists any member, that member must show that it is making reasonable efforts to solve its own problems by the pursuit of sound economic policies. A member is expected to adopt a credit policy which will not result in recurring deficits in its balance of payments account, and that it will not overspend in such a way as continually to unbalance its budget. These are conditions necessary to support any programme aimed at maintaining the stability of a country's currency.
As the noble Lord who is in charge of this Bill has explained, the help which the Fund gives is intended only as a temporary measure to assist a member in overcoming temporary difficulties pending corrective remedial measures or to maintain exchange stability during certain capital movements which with convertible currencies may take place for a number of reasons and which may subject a currency to temporay strain. The Fund is not authorised to assist whatever the nature of the capital movement. I think the conditions under which the Fund operates are very important.
The second good fortune which we enjoy is that the Fund operates under the direction of a managing director, Mr. Per Jacobsson, who, as the noble Lord, Lord Mills, has said, has shown himself both extremely able and at the same time tactful in tendering advice to member Governments. In a speech last month Mr. Per Jacobsson made an historical survey ranging from the Athenian silver drachma, with which a stable currency was maintained for over 100 years, to the gold franc of 1802 and the pound sterling, sound and trusted for more than a century up to 1914. Mr. Per Jacobsson drew the conclusion that high culture and stable money go together; that it seemed to be a lesson of history that without stable money neither justice nor progress can be assured and that the human spirit cannot give of its best nor nations maintain their self-respect if harassed by the uncertainties of an unstable currency.
Some of us look back with some nostalgia to the cohesion in the international monetary system which gold movements under the old gold standard more or less automatically produced. 277 But having cut adrift from the discipline of the checks automatically applied under the old gold system, we have been searching for methods of maintaining a comparatively stable level of prices through credit and other policies. None can claim a record of complete success. Many currencies have been wrecked. A lack of restraint and the inability of peoples to impose sufficient self-discipline have brought about a general depreciation of currencies.
Unfortunately, peoples and Governments do not always recognise that the deliberate debasement of a currency undermines the political and economic morale of any country. For a Government to fail to take corrective measures is not only to fail in a duty to the people who trust their currency but to countenance an act of plain dishonesty. Although these considerations are involved in the Bill before your Lordships they also go beyond the scope of the work of the International Monetary Fund which, as its managing director has pointed out, is neither omnipotent nor exclusive, not being the only institution concerned with monetary policy.
Owing to the external convertibility of an increased number of currencies and to the weakening of the dollar which is an important reserve currency the directors of the International Monetary Fund, with the agreement of the monetary authorities of the ten leading industrialised countries with the main responsibility for making contributions to the Fund, feel that the resources at their disposal might be insufficient in the event of a crisis arising out of the movement of funds from one country to another affecting the currency of one of its members. Subject to certain conditions requested by the French Government, ensuring that representations made by any country asked to assist are fully considered, these ten countries are agreeing to put up additional funds to the limits set out in the Command Paper. I am pleased to support the Bill, which authorises this country's participation in the manner set out to a limit of £367 million.
But having said that, there are one or two additional matters to which I should like to refer. The first is that if any loan is made under this agreement 278 by this country to the International Monetary Fund the United Kingdom will be repaid the equivalent of the gold value of the original sterling lent. I am pleased to see that the British Government will obtain repayment of any assistance they give on a satisfactory basis. Set such a good example, I hope that Her Majesty's Government will resolve and take the necessary measures, which no Government has done in this country since the war, to see that their own citizens who lend their money in future to the Government are repaid on an equally satisfactory basis.
I should also like to draw attention to the fact that gold, and only gold, has so far given any stability to the world's monetary system. For gold cannot be arbitrarily created as credit can. Over the ages, a currency relationship to gold has been the only satisfactory check on the dishonesty of a Government which is willing to allow a currency to be debased because it is not sufficiently courageous to take the necessary steps to maintain its value. Although Her Majesty's Government must be complimented on having tried in recent months to take some such steps, they have largely failed, I fear, to get over to the public the very real danger of inflation, which in these days is never far removed. Eminent economists may tell us that they can produce a standard which they think would be satisfactory, but the fact remains that gold still inspires confidence and is likely to remain the only standard which is so recognised by the ordinary citizen. This is the reason why the directors of the International Monetary Fund feel, and I agree with them, that gold should not be discarded as an unnecessary reserve.
There is another matter which I should like to raise in this connection. I do not think we can be entirely happy about the gold exchange standard which now prevails. This imposes a special responsibility upon the two main convertible currencies, sterling and the dollar, in which part of the reserves of other countries are held. The movement of dollars during the past few years has disguised weaknesses in American financial policy which would have necessitated earlier corrective measures if other countries had elected to hold their reserves in gold rather than dollars. Perhaps this matter 279 of the gold exchange standard, which M. Rueff has criticised, will receive some attention at the meeting of the Governors of the Central Banks of the ten industrialised countries with the managing director of the Fund which, I understand, is to take place in Rome in May. It seems to be generally accepted that the pound and the dollar are now so inter-involved that risks adversely affecting the one would carry the other with it. I hope this will not lead to complacency in a willingness to tolerate the gradual deterioration of the purchasing power of both currencies so long as they move together.
I have heard it said that the Fund is too tough in its relations with a Government who requests help but shows reluctance to put its house in order. I would that some other international organisations would be tough in this sense. Since when has it been tough to expect a borrower not to overspend so that he is unable to meet obligations he freely assumes? This would be recognised as plain dishonesty in dealings between individuals. Governments, no less than individuals, cannot escape for ever the consequences of their actions. If a country aspires to progress, it must follow the well-marked path used by the countries which have achieved a measure of prosperity and wealth. But because the path is well marked, the countries treading it to-day may hope to find the going easier and quicker to travel.
I hope, in the interests of sound progress, the good influence which the International Monetary Fund is exercising through its managing director and his colleagues may be an example to other international organisations, and that O.E.C.D., in particular, will follow the same methods in the administration of assistance to be made available to the less industrialised countries.
§ 4.25 p.m.
LORD HAWKEMy Lords, I do not intend to follow the noble Lord, Lord Grantchester, into his excursions, because I feel that he was laying down rules for a world much nearer perfection than the world in which we live at the moment. The removal of foreign balances has always been the sanction which enjoins careful management on any who aspire to be a banking nation. 280 But it is intolerable that there can be a threat to an important currency by the removal of foreign money, not due in any way to mismanagement, but due to the enormous volume of mobile money in existence in the world; perhaps in one case "hot" bank money, which might fly from a lowering of a bank rate where the bank rate was required to be lowered for internal reasons; or might fly because some neighbouring country had thought fit to have a higher bank rate, and a similar large volume of Stock Exchange money which might fly because the prospects suddenly in some neighbouring country appeared to be better.
In my humble opinion, and that of various other people, the proper way to guard against this is to increase the value of gold so that the world's gold reserves become of greater value. The advantage of that method is that the new gold that is coming into the world every year tends to keep pace with the increasing volume of mobile funds. But, as we all know, the obscurantism of the United States on this subject makes that solution quite impossible, at any rate at the moment. The solution in this Bill is the next best.
I believe that, in view of the ever-increasing volume of this mobile money—and it must increase every year—we shall need an increasing counter weight, and that the lending powers of the International Monetary Fund must be kept constantly under review. This is not a "once and for all" operation—it simply cannot be. The noble Viscount, Lord Alexander of Hillsborough, seemed to think that the necessity for it was caused by Conservative financial policies. It is nothing of the kind. It is caused by the increasing wealth of the world, and the fact that there is a much greater spread of prosperity so that countries are willing to keep their balances in more places. When the noble Viscount was in power, the only place where anybody wanted to keep any money was the United States of America. Likewise, my noble friend who is moving the Second Reading of this Bill hopes that no large operation such as we had some little time will ever be required again.
I think that is a vain hope. As the volume of wealth in the world increases, 281 so will the size of the operations necessary occasionally to rescue any one currency which may be in danger. Therefore, with the suggestion that this is only a preliminary and first step in increasing the volume of credit available from the International Monetary Fund, I support this Bill.
§ 4.30 p.m.
§ LORD MILLSMy Lords, I am very grateful for the general support which this Bill has found. The wise and understanding words of the noble Viscount, the Leader of the Opposition, were very helpful and should be an inspiration to us always to do our best to keep out of war. The noble Lord, Lord Grantchester, gave us a further elucidation of this important Bill, and in doing so made references to the historical surveys of Mr. Per Jacobsson. He took the opportunity to refer to the importance of making repayments to our own nationals at the same value as that at which they had lent to their Government—and that is very important. But, of course, in looking at that situation we must have regard to two things. One is the effect of the two great wars which many of us have experienced in our lifetimes, and the other is the fact that we cannot go on taking more out of the economy than we are putting into it, without seeing our currency depreciate in real worth.
§ LORD GRANTCHESTERMy Lords, I only asked the noble Lord to remember it for the future.
§ LORD MILLSI am grateful to the noble Lord for drawing attention to it, because I do not think we can say too often that if people will take out of the economy more than they put into it, the currency is bound to depreciate. I hope that at last we have learnt that lesson and that the steps now being taken will have their effect. The noble Lord made some very important comments. He said that he hoped that the tendency for sterling and the dollar to move together would not lead to complacency over the problem of keeping up the purchasing power of our currency. He warned us that if a country aspires to progress it must follow the well-marked path which countries who have progressed have had to follow.
282 The noble Lord, Lord Hawke, drew attention to this important question of the movement of mobile money and recognised the value of the Bill in facing that problem. He said that I had expressed the hope that this country would not have to draw again from the International Monetary Fund on the scale that it had to draw last August. I was a little surprised that he thought that that was a vain hope. I quite agree with him that the wealth of countries and the movement of money in the world is bound to go on and will present us with problems. This Bill represents a very important step, which may be only one of a series of steps, to deal with this problem.
§ On Question, Bill read 2ª; Committee negatived.