§ 2.58 p.m.
§ LORD BESWICK
My Lords, I beg to move that this Bill be now read a second time. This Bill is deceptively short. It is in fact one of the most hopeful and important measures ever to come before your Lordships' House. It is about paper gold. Gold has always had a fascination for mankind. It is an irrational thing, if you like, because of course the practical uses of gold are limited. Before the First World War gold was the universal money, used both internally and externally. Though before 1914 it was necessary to supplement gold by the issue of notes, even in those days the notes were freely exchangeable for gold. Nowadays there is no country in the world in which gold coin is the basis of the currency as it was in those days. For internal purposes, everywhere we have "managed" currencies.
In international affairs, however, we have not moved so far. We no longer have the gold standard in its old form, but gold still is, in an important sense, the basic element in the international monetary system. It accounts for about 40 billion dollars out of the world's total of about 70 billion dollars of international reserves. And because the belief in gold is still strong, it will continue to play an important part for many years to come. But this means that for an 13 important part of its international reserves the world is dependent on the rate at which the metal can be dug out of the ground. What we need is a means of creating international reserves on the basis of a rational and collective judgment about the world's needs.
It is many years now since Lord Keynes put forward proposals in his plan for "Bancor", a new form of international money, proposals which caught the imagination of many people. His ideas were too Far-reaching for his time, but they were an important stage in the evolution of opinion to the point at which we are at least able to establish a genuinely international paper asset, resting on the agreement of the nations of the world to uphold its value. The S.D.R. scheme tray seem to many people a very modest beginning, but in the long history of the development of international monetary affairs, it is a new departure of great importance.
The essence of S.D.Rs. is that they will he created by the I.M.F. without any subscription of gold or currency by countries which take part in the scheme. This is the most important difference between S.D.Rs. and existing drawing rights in the Fund. It does not of course mean that the S.D.R. scheme is an unconditional licence to print money on an international scale. S.D.Rs. will be allocated in proportion to Fund quotas, and the amount to be created at any one time and the rate at which they will be allocated, will be matters for the Fund to decide collectively. In any decision of the Fund about the amount of S.D.Rs. to be created and allocated, a crucial factor will be the judgment of the Fund about the world's total need for new liquidity.
It follows, of course, that S.D.Rs. cannot be called into being simply to solve a situation of payments imbalance. It is fundamental to the scheme, and indeed a precondition of its activation, that participating countries should take positive measures towards restoring equilibrium to their own balance of payments.
The S.D.R. scheme will stand on the foundation of the existing world monetary system and we have got to make sure that that is a stable foundation. The measures which we have taken to correct our balance of payments and the 14 measures the Americans are now taking are a major contribution to that stability. That is why the signatories of the March Washington communiqué expressed the view that, with the prospective coming into force of the S.D.R. scheme, existing stocks of monetary gold were adequate. In this sense the description of S.D.Rs as "paper gold" is apt. The value of S.D.Rs will be related to a given weight of gold. Their acceptability will be based on the fact that they will be backed by participating countries' existing holdings of gold and currency, for which they will be exchangeable on certain conditions. This means that they will be effectively as good as gold or currency, and we have stated our intention to include any United Kingdom holdings of S.D.Rs as an addition to our reserves.
My Lords, I have dealt in general terms with the nature and purpose of S.D.Rs. A more thorough explanation is in the White Paper (Cmnd. 3662) which I would urge noble Lords to study, if they have not already done co. As the White Paper makes clear, the legal framework of the scheme is being provided by amendments to the Articles of Agreement of the I.M.F. These amendments have been approved by an overwhelming majority of the Governors of the Fund—in a postal vote which ended on May 31—and on the basis of this approval the Fund is now seeking formal confirmation from member Governments that they accept the amendments The process of enactment will be complete as soon as the Fund has received acceptance from three-fifths of the members having four-fifths of the voting power. In common with many other member countries the United Kingdom Government could not participate in the S.D.R. scheme without new statutory powers. We are therefore asking Parliament by means of this Bill to equip us with the necessary new powers before notifying the Fund that we accept the amendments to the Articles embodying the S.D.R. scheme.
The purpose of the Bill can be quite simply stated. It is to extend the existing powers of the Treasury in relation to the Exchange Equalisation Account to engage in all transactions in S.D.Rs, under the amendments. The Appendix to the White Paper, containing the amendments, is essentially a companion document to the Bill, since the powers 15 under the Bill are determined by the amendments. A similar procedure was used for the Bretton Woods Agreement Act of 1945. The choice of the Exchange Equalisation Account as the agent and depository for all the Government's dealing in S.D.Rs was a natural one.
There is one footnote which I ought to add to the Bill and the White Paper, in the interests of clarity. I have been talking as if the Bill and White Paper were concerned exclusively with the Special Drawing Rights scheme. A number of other amendments to the Fund's Articles of Agreement are proposed besides those which embody the S.D.R. scheme. The most important relate to the voting procedures in the Fund. They involve changes in the weighted majorities required for certain decisions under the Fund's Articles. These other amendments are described in pages 15 to 20 of the Appendix to the White Paper. There are one or two minor and highly technical consequences for certain transactions with the I.M.F. involving the E.E.A. My Lords, the major objective at the outset must be to get the machinery for creating S.D.R.s to run smoothly, and to gain acceptability for the new asset as a medium of international settlement. I ask your Lordships' House to give a Second Reading to the present Bill in the confident hope that we shall see the achievement of this objective well within the lifetime of the present Parliament.
§ Moved, That the Bill be now read 2a. —(Lord Beswick.)
§ 3.7 p.m.
§ THE EARL OF DUNDEE
My Lords, this Bill asks Parliament to give its consent to an international scheme to which Her Majesty's Government have agreed. Any criticisms which any of your Lordships may have to make of the scheme are not necessarily or primarily criticisms of Her Majesty's Government. We all know that in order to get an international agreement at all on a matter of this kind the United Kingdom Government may be compelled to accept a great deal less than they would have liked. I am afraid that I cannot agree with the noble Lord's description of the scheme which this Bill asks us to approve as a great advance in the control of world currency. I am deeply disappointed that the recent conferences at Rio and Stockholm have 16 produced nothing more than this pitiful little mouse which we are now asked to welcome. I always like to be kind to small animals, but nothing could be more untrue than to describe this scheme as a great advance, still less as a novel movement. It is really nothing more than a very under-sized and rather crippled imitation of the plan which the late Lord Keynes first proposed at Bretton Woods 25 years ago but which proved unacceptable to our allies.
I do not want to trouble your Lordship with many figures, but it has been calculated in the International Monetary Fund publication, International Financial Statistics, that for the two pre-war years the total amount of world monetary reserves (at that time they were over 90 per cent. gold), including convertible currency held as reserves by the central banks, was greater than the annual amount of world imports: to be exact 107 per cent. of the total amount of world imports. Now, in the 1960s, the total amount of world reserves including everything—the gold tranche and the currency reserves held by the International Monetary Fund, and all the reserve funds held by all the central banks—is, I believe, not more than 45 per cent. of the average annual imports of all trading countries added together.
In 1937–38 the total amount of world imports was, I think, about 27,000 million dollars, and the total amount of world reserves was about 29,000 million dollars—substantially more. Now, in the 1960s, the latest figure of imports I have seen, which is probably a year or two out of date, was 160,000 million dollars, and the noble Lord, Lord Beswick, has just given us the figure for the total amount of reserve currencies of 70.000 million dollars, of which 40,000 million is gold and 30,000 million is paper currency. That is a great deal less than half of the total amount of world trade arrived at by adding together everybody's imports.
There you have the reason why there is so much difficulty among trading nations in preserving any kind of convertibility in their currencies. They are operating on such a very thin shoestring of reserves of international credit money that they cannot carry on successfully for more than a year or two, without finding themselves with such a large trade deficit 17 that they have to take un-neighbourly steps to prevent other people getting any of their currency and to keep out other people's imports.
Twenty-five years ago at Bretton Woods, Keynes' original plan for a clearing union would immediately have increased, in the form of international paper currency, the total amount of world credit reserves by no less than 25,000 million dollars, which might have been right for that time. In the event, the International Monetary Fund, which Keynes was compelled to accept as a very poor second best, started off at its inception with just over 8,000 million dollars-worth of currency reserves. Since then the two increases which have taken place—the 50 per cent. increase in 1959, and then the 25 per cent. increase at Tokyo in 1964 —have been nothing like commensurate with the growth of world trade. The Tokyo increase amounted in absolute figures to the sum of 4,000 million dollars.
The best estimate that we can get from the Government, which was given in another place a week or two ago, of the additional amount of monetary reserves which will be added to the world's stock by this scheme, is that in the first five years after it has been activated—and remember, my Lords, that it is not likely to be activated until 1970—it will be somewhere between 1,000 million dollars and 5,000 million dollars. There you have the measure of the hopeless inadequacy of this scheme to deal with the world's greatest economic problem.
I should like to compliment the noble Lord, Lord Beswick, on the clarity with which he introduced the Bill. He advised us to read the Government's White Paper (Cmnd. 3662), which I have no doubt many of your Lordships have attempted to do. The first six pages of it contain the Government's own explanation and are, I think, very good and are clearly expressed, as was the noble Lord's own speech. But I am afraid I cannot say the same for the next 46 pages, which contain the Report by the Executive Directors of the International Monetary Fund. I think this is a very good example of what the late Lord Keynes used to describe by the word "Cherokee", which he invented, and which meant the translation of English into incomprehensible jargon.
18 I have often been told that international bankers do this quite deliberately, because they do not think it is good for politicians to understand what they are trying to do, being afraid that the politicians, who know even less about it than they, may interfere if they get to know what they are up to. That is supposed to be the reason why the bankers often clothe their reports or proposals in language of such impenetrable obscurity that it cannot be understood, even by the most intelligent member of the United States Congress, so that neither that legislative assembly nor any other is likely to interfere.
That is why they have to describe what I think is really a very simple change in the rules governing the purchase of gold tranches by saying this:By permitting the exclusion of purchases under the compensatory financing facility and the holdings of currency acquired by the Fund as a result of those purchases, the definition in Article XIX(j) will make it possible for the Fund to continue the present practice of treating the compensatory financing facility as separate for the purpose of applying the Fund's policies on the use of its resources.I should not object to this obscurity —in fact, I should welcome it—if only it covered something substantial and interesting. But it is a little hard to read through it and then to realise that it covers only a possible 1½ per cent. increase, or, at the best, a 6 or 6½ per cent. increase in the present world reserves of which there is such a pitiful shortage at the present time.
The noble Lord, Lord Beswick, told us something about gold, and the reason why we should not go on with &old as the chief credit base, and a good deal was said about that question when this Bill was introduced into another place. In the Government's White Paper, which gives a clear explanation of what they are trying to do, they deal with this point in paragraph 7, where they say:It is sometimes suggested that the problem could be solved by increasing the price of gold, but Her Majesty's Government, in common with most other Governments, believe that this would do more harm than good, and would mark a retreat from the concept of rational management of the world monetary system.I do not know exactly how you retreat from a concept, but this sentence would 19 be very true if only it could read that itwould do more harm than good, because it would mark a retreat from the reality of rational management of the world monetary system.The position is that we do not have the reality; and what is the use of talking about not wanting a retreat from a concept, when there seems to be no immediate prospect of ever having the reality?
The noble Lord gave us the proportion —40,000 million dollars of gold reserves, compared with only 30,000 million dollars of paper. Of course, what we ought to have, and what Lord Keynes said we ought to have 25 years ago, is what he called a quantum of international credit, not determined in an unpredictable and irrelevant manner such as the production of gold, but governed by the actual requirements of world commerce. That, my Lords, is precisely what we have not got. We have got world reserves, a world monetary system which is still mainly governed by the price of gold; but by holding down artificially the price of gold to perhaps half of what it would have been if it had moved in step with other commodities we have immensely reduced the value of these gold reserves. We are getting the worst of both worlds: we have halved the usefulness of such gold as we have and we have not provided anything like enough paper currency to make up the difference—and that is the root of all our difficulties.
Of course, if we could have enough special drawing rights to create another 70,000 million dollars, perhaps, of reserve currency, then we might be able to get on without gold at all, and the price would not matter. But surely it is reasonable to point out—and it is a most tragic irony, really—that if there had never been any International Monetary Fund at all, if we had had no international monetary organisation after the war and if gold had been allowed to find its true market value, we should have far more world reserves than we have now and we should all be in a better position than we are now. That, of course, is the real practical argument in favour of the French Government's contention that we ought to go back to the gold standard, which is theoretically quite indefensible. 20 But if you have got in practice to have more than half your world reserves in the shape of gold, then why not have its true value, which would immensely increase the usefulness to the world of these gold reserves?
My Lords, I am afraid there is a great disposition among both bankers and other people, too, to fall into the fallacy of thinking that national balances and deficits are comparable to the balances and deficits of the income and expenditure of a private individual, a firm or a business—which of course they are not. You cannot carry on world trade without somebody having a deficit, because the total amount of deficits and surpluses in international trading accountancy must balance, and the purpose of having reserves is to enable world economic growth to go on over a considerable period while some countries have an inevitable deficit on their trading account. In the case of businesses or companies, it is perfectly possible for every single tradesman, every company, every business, to make a profit, and provided that some of that profit goes into investment, new capital, then everybody will get richer and everybody's prosperity will increase.
The question of whether, say, the county of Kent or the county of Surrey has a favourable or unfavourable balance with the other does not matter to the economy of the country. It simply means that if, say, in the year 1968, Kent has a favourable balance, the people of Kent have then acquired more claims in Surrey on the national pool of money than the people of Surrey have done in Kent. And if the world had a unified system of commerce and currency then, of course, the question of whether Britain or France or Belgium or the United States had a deficit or a surplus would not matter any more than that. But what has happened nationally is that, as the noble Lord, Lord Beswick, told us, every great trading country now, whether it is a free country or a totalitarian country, has a managed internal currency. Even those countries which use gold to a large extent have a managed currency; and although they have not all managed it perfectly, or even well, they have on the whole managed it a good deal better than if it had been left to the blind forces of gold which it used to be forty years ago. But that has not happened with world 21 international currency. For world international currency we have failed to have a sensible managed plan, and the international credit resources which we have created are pitifully inadequate to finance the growing international commerce of the modern world.
My Lords, we must of course accept this Bill for what it is worth, but do not let us represent it as a giant stride forwards in world economic affairs. It is not. The agreement to which this Bill gives assent is in fact more than twenty years too late and nearly twenty times too little; and that is the only thing I can say about it. If you try to make out that it is anything better you will only create disappointment later on and, what is worse, you may prevent everybody from trying to do something better than is done in this agreement.
§ 3.27 p.m.
§ LORD CARRON
My Lords, as an engineer just touching on politics and banking very marginally indeed, I do not know that I should want to accept particularly any of the strictures that might be implied in the noble Earl's observations. I must say that all of us appreciate his disappointment that we have not been able to go further in this field. At the same time, we have to realise the background against which the negotiations were set. I think it causes many of us massive surprise that we have been able to advance even so far as we have gone, having regard to the intransigence of many of our international—shall I say? —friends. From the attitudes that have been displayed in certain quarters in the last two or three years I should have thought it almost impossible to have reached the stage we have reached now.
This Bill does not attract the interest and spectacular treatment accorded to many Bills discussed in recent times in your Lordships' House and another place. Neither has it the dimensions of many other Bills. However, it can be stated with truth that few have possessed the potentiality for medium-term and longterm impact upon the fortunes of nations as that contained within the subject-matter of this Bill. We are invited to approve a course of action which is designed to remove a very real threat to international trade and consequently a threat to the wellbeing of nations, especially our own, and to provide a means to 22 stimulate world trade to the increasing benefit of nations. If success is achieved by the adoption of the S.D.R. scheme, the future prospects of the developing nations will be very considerably enhanced.
As has been said, the White Paper [Cmnd. 3662] explains in detail the provisions of the S.D.R. scheme in the explanatory note and in the appendix. It is unfortunate, but I suppose inevitable, that more often than not there is misunderstanding of international financial operations resulting in quite wrong assessments of the realities. I hope your Lordships will agree that it would not be amiss to spend a few moments in having r look at the reasons for the initiation of the S.D.R. scheme and at what is involved, in rather simpler terms than those of the White Paper. It should be emphasised that the S.D.R. scheme is generally said to represent the first step—and I underscore "first"—towards a solution of the serious problem of international liquidity. I think it would be useful to consider briefly the nature of the problem.
As your Lordships are aware, international liquidity is the supply of means of payment available to official holders for international settlements. For practical purposes, this means gold and currencies, principally United States dollars and sterling, to which is usually added reserve positions in the I.M.F.: that is, the amount which countries can draw from the Fund virtually on demand. It is important to remember that although gold is only one element in the total supply, the remaining elements derive their acceptability in part from the fact that, directly or indirectly, they are exchangeable for gold. Gold is therefore the basis of the international monetary system. In recent years a number of disturbing trends have emerged. First, the total supply of international liquidity has expanded much less rapidly than international trade. In very broad terms this means that the cushion available to meet fluctuations in international trade has been shrinking, relatively speaking. The risk that countries might, as a result, have to restrict international trade has grown commensurately. At the same time, not only has the proportion of gold in total reserves been falling, but so, too, has the absolute level.
This situation will not correct itself autonomously. Indeed, the chances are 23 that if nothing is done, it will get worse. It is not possible to increase the rate of gold production; indeed, this is likely to decline in the years ahead; and both this country and the United States have adopted policies designed to bring about surpluses in their balance of payments which will restrict the amount of reserve currencies available for international settlements.
This is the problem which the S.D.R. system is designed to help solve. It will provide a means of making controlled additions to world liquidity in a rational manner. The supply of international liquidity will then be less dependent on the United States' or the United Kingdom's balance-of-payments deficits (which are unacceptable domestically as well as internationally) and on the vagaries of gold production and sales. The new scheme will give the international community a chance to ensure that the world's productive capacity is not grossly underemployed for want of international reserves or, indeed, grossly over-employed as a result of the superfluity of them—because S.D.Rs. can be cancelled as well as created. Moreover, the distribution of the new reserve asset will not, like gold, depend on the accident of geography but will be made to all members of the I.M.F. which wish to participate, in proportion to their existing quotas.
I would emphasise strongly, and I hope it is clear from what I have said, that the S.D.R. scheme is not designed either to provide a solution to our balance-of-payments problem or to obviate the need to find a solution. Indeed, the Scheme will not come into operation until there is convincing evidence of progress towards a better balance-of-payments equilibrium in the world. Nor must the Scheme be regarded as a panacea for all the economic ills of the world. It is, as I mentioned earlier, a first step and is, therefore, a point of departure rather than a point of arrival. Doubtless there will be a long road to travel before the world has developed an international monetary system which is fully adequate to ensure the continued expansion of world trade and the continued growth of prosperity. But let no-one doubt the profound importance of the fact that this first step is now being taken.
24 My Lords, may I spend a few moments in presenting in such simple terms as I understand, how the scheme will operate? S.D.Rs. will be activated on the initiative of the Managing Director of the I.M.F. as and when the world balance of payments is seen to be in better equilibrium and the need for an increase in liquidity is generally agreed to exist. In practice, for the first activation a substantial reduction (but not the complete elimination) of the U.S. deficit will probably be necessary. To activate the Scheme will require an 85 per cent. majority of the voting power of I.M.F. members. The significance of this is that if all the E.E.C. countries vote together they can prevent activation, their combined voting power being 16.5 per cent.; the U.S.A., 22 per cent. and the United Kingdom, 10.4 per cent. A decision will normally be taken to make annual allocations over a five-year period with the possibility of varying the annual rate within the period should the situation warrant it.
There has been little discussion over the amounts likely to be dispersed, but, informally, it is generally agreed that, for the first allocation, a total of 1,000 million dollars a year is the most probable. Out of this total, every country will receive an allocation in proportion to its I.M.F. quota. Since total official reserves are around 70 billion dollars, we may expect the new scheme to add some 1½ per cent. a year. The United Kingdom would get about 100 million dollars a year and the United States about 200 million dollars.
The form that the facility will take will be a Special Drawing Right in an affiliate account of the I.M.F. Some countries, for example, France, claim that this indicates that what is being created is simply a new form of credit, not a new reserve asset. It is true that the United States and the United Kingdom, together with a number of other countries, would have preferred the facility to take the form of a unit, to emphasise its asset-like qualities, but the distinction is largely a verbal one. The outline scheme states plainly that what is envisaged is a supplement to existing reserve assets. The S.D.R. will be available to a country to purchase convertible currency unconditionally; there will be no question of having to submit to a 25 judgment by other countries on prospects of policies, as with an I.M.F. credit tranche. Moreover, most countries will be including their S.D.Rs. in their official published reserves.
It is true that a number of rules for the transfer of Drawing Rights have been laid down. Broadly, countries are expected to use S.D.Rs. only when their total reserves are failing and not simply to change the composition of their reserves. There is a limit (three times the quota) to the amount of S.D.Rs. which a country is obliged to accept. Moreover, there is to be some obligation to "reconstitute" S.D.Rs. This is a complicated and technical matter which has been the subject of prolonged debate in the Group of Ten meetings. The formula which has emerged is that over any five-year period a member's net average use of the new facility should not exceed 70 per cent. of its allocation. This means, if we assume that for the United Kingdom the first distribution will be 100 million dollars a year, that during the first five years the United Kingdom will be able to make net purchases of 350 million dollars of foreign currencies with her S.D.Rs.
But the timing of the use of the facility is left entirely to the country concerned. Provided the balance-of-payments position justified it, a country could use all its allocation for the first three-and-a-half years and then hold intact its allocation for the last one-and-a-half years. Alternatively, it could use 70 per cent. each year. If in one year it was a net receiver of S.D.Rs. from other countries, providing them with corresponding amounts of currency, then this excess over its allocation would be taken into account and would enable it to use its Drawing Rights more fully in subsequent years.
My Lords, on the whole question of "reconstitution" it is perhaps worth emphasising that this will not mean repayment of anything in the normal sense. Since most countries will include S.D.R.s in their reserves, reconstitution of these rights, that is, the sale of some dollars to purchase some Drawing Rights, will not affect the total of a country's reserves, only its composition. Although it will be possible for countries to make bilateral deals with one another to exchange Drawing Rights for currency, all 26 the accounting will be done by the I.M.F. staff and in many sales and purchases of S.D.Rs. they will provide guidance and help as to which countries might most appropriately take part—very much as they do now on the question of which currencies are to be involved in an I.M.F. drawing.
The various rules governing the use of S.D.Rs. should be seen less as restrictions on individual countries' freedom to use the new facility than an arrangement to ensure credibility and status of the facility itself. Since the facility is to be genuinely "created out of nothing" and to have no backing in the normal, sense of currencies of gold, it is necessary, at least at the outset, to have some rules which will ensure that it is not abused; that it will circulate among all countries and will not end up in unduly large quantities in the holdings of one or two countries. It is to be hoped, and indeed expected, that as we gain experience with the use of the new facility, the need for strict rules will gradually diminish until it becomes fully comparable with gold or the reserve currencies.
As I mentioned and as your Lordships are aware, the precise technical details are contained in the White Paper. May I also commend to your Lordships a perusal of the article by Mr. L. P. Thompson-McCausland in the June issue of the Bank of England Bulletin—if I may say so, one of the most, if not the most, informative publication in the United Kingdom. I have tried to present in simple terms an interpretation of the S.D.R. project held by myself and many others. I should be grateful if, in his reply, my noble friend, speaking for the Government, would correct any erroneous impression I may have gained. Necessarily a project of this kind requires legislation by the Governments concerned which is, of course, the reason why this Bill is before Parliament. Your Lordships will, I am sure, not only give a Second Reading to the Bill but also welcome the subject matter as one of the most far-reaching international projects initiated for a considerable time. It is vitally necessary, however, to realise the limitations of the Scheme and not o confuse its operation with other items of international finance in which we as a country are at this time so critically involved.
27 In conclusion, I think it fitting that tribute should be paid to the work performed in Rio de Janeiro last year by my right honourable friend the then Chancellor of the Exchequer and also the personnel from the United Kingdom who, by their strenuous efforts, expertise and patience, have, in the various discussions which have taken place, including those at Stockholm, made an invaluable contribution to this project of such worldwide importance.
§ 3.42 p.m.
My Lords, I find myself, happily, almost in agreement with nearly everything said by the noble Earl, Lord Dundee, except that I think that he has been a little harsh about the efforts and the work of the Group of Ten. They have now been working for four years and have produced a scheme which he referred to as a "mouse". That was hardly complimentary about the efforts which these gentlemen have put in, particularly when the noble Earl went on to say that there is not much hope for the continuation of this scheme.
I have had the privilege of being a member of your Lordships' House for only a brief span of years, but this piece of paper, the International Monetary Fund Bill, is to my mind the most vital and the most momentous Bill which has come before this House in that time. As the culmination of years of thought, intensive negotiation and foresight, it is insignificant, in size, alongside the massive legislative terms that we have seen before us of late. But I venture to predict that before the turn of the century—probably years before—this tiny Bill will be regarded as a breakthrough comparable only with that of Rutherford in 1904 in generating a power to do things that had long needed to be done.
My Lords, we all well remember the early days of the I.D.R.D., with its staff of about eleven. Little support was given to it after Bretton Woods, and not for some years, until the advent of people like Mr. Eugene Black, were World Bank bonds really acceptable on the market. To-day, nobody would deny that the World Bank and the I.M.F. have done some pretty useful work in the past twenty-one years. To my mind, the I.M.F. arrangement for S.D.Rs. is a concept of a new philosophy of attack upon 28 the post-war problem of limited liquidity in the rapidly expanding role of world trade. This philosophy gives us a future progressive and logical order of money events in place of the fortuitous happenings of the immediate past.
The point the noble Earl has missed, I think, is that the purpose of this scheme is to give the international community an ability to control world reserves, rather than what has happened in the past, when the fluctuation in world reserves has dictated to the international community. They now have three pieces of useful arm amentarium. They have the old armaments of gold and reserve currency balances, but the S.D.R. scheme will allow them to fluctuate between all three and thus gradually eliminate the short-term disturbances which have bedevilled us for years. Perhaps, too, it will shortly lead to the fulfilment of the noble Earl's wish—in which I join—for a realistic value of gold.
Internationally, my Lords, this scheme means one more cornerstone in the structure of a lasting world peace; a weakening of the viciousness of the balance-of-payments problems; improvement in both the quality and the quantity of development aid programmes, and closer ties within the Commonwealth itself. And the sooner the scheme starts, the better. I did not take it from the opening speech of my noble friend that he had an idea of when the scheme would commence. Perhaps in his reply he could give us some indication of when he anticipates that the first allocation of the S.D.R.s will be made.
I subscribe to the views of my noble friend that the unconditional liquidity produced by this new philosophy does not have any direct bearing on the role of sterling, as such, in this country but it certainly means that over the years to come the money we produce here will become infinitely more secure from the vagaries of uncontrolled events. We shall still, however, have to earn our keep in even greater measure, and it must be made quite clear that this Bill does not produce a formula for any slackening of effort by anyone here at home. It is for us alone to put flesh on this backbone—and I hope a little fat as well. My Lords, I welcome this Bill. My thanks go out to the deputies of the Group of Ten for all their efforts in bringing 29 it about, and not least to the leading efforts of this Government, with all their tribulations, for bringing to fulfilment the aspirations of many years.
§ 3.50 p.m.
§ LORD BOOTHBY
My Lords, I shall be brief. I am afraid that I cannot altogether share what I regard as the somewhat wild optimism of the noble Viscount who has just sat down and who seems to think that we have now turned the corner and seen the light. I doubt whether that has happened. But I should like to congratulate the noble Lord, Lord Beswick, on the lucidity and clarity of his speech. The only thing I cannot quite understand is why he commended to our attention the nonsensical mumbo-jumbo of the White Paper. This is, of course, a typical product of the international bankers and economists who are now concerned with making everything they write quite incomprehensible, in order to disguise their own total failure to provide us with an adequate international monetary system since the war.
One thing pleased me enormously about the noble Lord's speech. He put gold in its proper place. He said, as is true, that it has been the basis of international credit for thousands of years. I think that it will remain the basis of international credit for thousands of years to come, because it is the only medium of international exchange that commands universal and total confidence throughout the world. It has always been so, and it always will be so. It may be said that it is irrational. I cannot help that. It may be irrational, but it is a fact.
Gold is of extreme importance and I agree wholeheartedly with the noble Earl, Lord Dundee, who said that all our problems would have been enormously diminished if gold had been allowed to find its proper value for itself, which it was prevented from doing by that wretched Bretton Woods Agreement. It is sometimes forgotten that President Franklin Roosevelt, when he first became President, hauled the world out of the greatest depression it has ever known—in defiance of all the international bankers and economists—by increasing the dollar price of gold. From that moment recovery began, and we did not look back.
Then at Bretton Woods a gentleman called Harry Dexter White got command 30 of the situation, beat Maynard Keynes, and insisted on fixing the price of gold at a wholly artificially low price, though gold remained the basis of credit; and refused to accede to Keynes's attempt to supplement gold with an international currency, which he called "Banco"!. I never thought it a very happy name. That was defeated. Ever since Eretton Woods we have been all struggling more or less against this shortage of international liquidity. That is at the root of many of our problems. As the noble Earl, Lord Dundee, has truly said, if we had allowed gold to find its proper place and price along with other commodities in the world, we should not have been beset with all the troubles we have been having for the last twenty years. These S.D.Rs. will do nothing to solve the incessant balance-of-payments problems.
I would describe this Bill, not in the glowing, almost heroic, terms employed by the noble Viscount, Lord Hall, but as a halting first step—I agree in the right direction—muddled up with a lot of verbiage which nobody can understand. But if one wades through the White Paper and gets to the gist of it, one sees that it is in fact a haltir g first step in the right direction. The full story is still to be told, and I hope to unfold it to your Lordships on Wednesday next.
§ 3.56 p.m.
§ LORD BESWICK
My Lords, I listened with great interest, as I always do, to what the noble Earl, Lord Dundee, said on this Bill. I am sorry he thought that this was such a modest effort, and. I am sorry he has the support of the noble Lord, Lord Boothby. With respect to both, I think they are mistaken in their assessment of this Bill. I think they underestimate its potential. The noble Earl complained about the volume of new liquidity which would be created in this way, and that despite all the labours of these various authorities they had brought forth only a small animal. But it is the growth potential of that animal that matters. In view of the fact that the animal is now born, and therefore capable of growth, I think that we, have cause for some optimism.
I think that the noble Earl was mistaken in his arithmetic about tie first five years. Some of the figures were 31 given in another place, but he talked about the volume of liquidity to be created initially, whereas the range of figures which were given were for an annual creation, not for a five-year period. As my noble friend Lord Carron said, this is an annual addition to international liquidity.
§ THE EARL OF DUNDEE
My Lords, I should like to get this clear. I think I am entitled to quote something the Minister said in another place. He said that he did not go beyond saying that the figures which have been talked aboutrange between one billion dollars and five billion dollars as a first creation issued over the first one to five years of the scheme.I did not read that as going on accumulatively increasing each year.
§ LORD BESWICK
My Lords, it may appear that my right honourable friend in another place said one to five billion dollars in one to five years, but the fact of the matter is that it will be an annual increase. It will depend on the circumstances at the time, and the confidence which is vested in these S.D.Rs. if confidence grows then the amount to be created in this way will grow.
§ LORD BESWICK
Certainly, my Lords. I do not propose to get involved with the noble Lord, Lord Boothby, about the question of gold. Maybe his optimism about this practically useless metal is justified, but I doubt it. Just in the same way as we phased out—as I tried to say in the speech which the noble Lord praised for its clarity—this particular metal from our national currency system, so I think, over the years, we shall phase out gold from the international scene. For the time being, however, these S.D.Rs. are an addition to gold and other reserve currencies.
My noble friend Lord Carron asked whether I would correct any erroneous impressions he might have received, either from the Bill, or from the White Paper. I am pleased to tell him that I have nothing to correct at all. Indeed, both he and I would have been very surprised had I tried to correct those impressions, because of the source from 32 which he obtained them, and I think that he put the mechanics of the scheme very clearly indeed. My noble friend Lord Hall asked about the timing of the scheme and about its coming into operation. It is expected that the various Governments will be able to ratify the Amendments by the beginning of next year. To some extent it depends upon the French, but I would expect that we should see the first allocation during the course of 1969. I am glad that, despite his reservations, the noble Earl said that he had no intention of criticising the Government or opposing the Bill. I hope, therefore, that we shall now be able to agree to its Second Reading.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.