§ 3.45 p.m.
EARL JELLICOEMy Lords, if it is convenient to the House, I should like now to repeat a Statement which my right honourable friend the Chancellor is making in reply to a Private Notice Question in another place. This is the Chancellor's Statement:
"I said yesterday that the consultations on the international currency situation were proceeding well. The whole House will be relieved that a solution has now been achieved.
"Early this morning an announcement was made by the Secretary of the United States Treasury. Its basic feature is a 10 per cent. devaluation of the dollar. This will involve a change in the official relationship of the dollar with Special Drawing Rights and gold. The Japanese authorities have indicated 1418 that the yen will be permitted to float. This also applies to the lira. Other major European currencies with fixed exchange rates are expected to reflect in full the 10 per cent. devaluation of the dollar relative to them. Sterling will for the time being continue to float, but, as I have said before, we intend to return to a fixed parity when conditions permit.
"The London Foreign Exchange Market was reopened this morning; but dealings are still affected by the uncertainties of the last few days.
"I welcome these new arrangements, and the House will agree that, compared with the events of 1971 (which also led to a realignment of currencies) a solution has on this occasion been found with remarkable speed, having regard to the range of interests involved and the complexities of the issues. This would certainly not have been achieved without the intensive consultations which took place over the weekend. As the House knows, we have throughout kept in very close touch with European colleagues. And I would add in particular that the way in which the United States, whose currency came under such severe pressure, has taken bold and constructive action in consultation with others, augurs well for future relationships across the Atlantic.
"But if the immediate difficulties have been resolved, the clear lesson to be drawn from the events of the past few weeks or so is the paramount need for constructive and speedy progress towards a more efficient international monetary system. We now need resolute determination to achieve results, and this will be my purpose when I attend the meeting of the Committee of Twenty next month in Washington."
My Lords, that is the end of the Chancellor's Statement.
§ LORD BESWICKMy Lords, we are grateful to the noble Earl for repeating that Statement, and we are particularly glad to see that Her Majesty's Government have fulfilled the assurances for which we asked yesterday and resisted any pressure to return to a fixed parity. Would not the noble Earl agree that this is especially important in the light of the 1419 trade figures which were published this morning?
The noble Earl mentioned the action of the Japanese and the Italian authorities with regard to their currencies. Have the Government any information at all about the countries which will be following the United States dollar in its 10 per cent. downward rating? Is it likely to be the majority, or what is the sort of outlook on that point? May I also ask what further action will now be taken to protect the poorer, less privileged, people in this country from the consequences of what will, in effect, be a further devaluation of the pound sterling? Can the noble Earl also give us any idea as to what the effective additional burden will be upon Britain arising from her E.E.C. obligations, including of course the C.A.P. payments?
Finally, although we share the relief mentioned in the beginning of the noble Earl's Statement that some solution has been achieved, will he accept that we agree even more with what is said towards the end of the Statement, that there is now a paramount need for constructive and speedy progress towards a more efficient international monetary system?
§ LORD WADEMy Lords, I should like to join in thanking the noble Earl for repeating the Statement, and I welcome the announcement which he has made. It would seem that the questions and answers in this House yesterday were something in the nature of a curtain-raiser for the Statement made to-day. Would the noble Earl agree that until there is a satisfactory world currency there are bound to be periodic changes in value as between one currency and another; and would he agree that there is nothing inherently objectionable in the floating of a currency within certain limits?—indeed, it may have some merits. What is damaging is the degree of panic that accompanies an expected change in the fixed rate, and the amount of speculation that goes with that panic. Lastly, I wonder whether Her Majesty's Government have yet been able to make any assessment of the effect of this latest Statement on our export prospects and balance of payments.
EARL JELLICOEMy Lords, I am grateful to the noble Lords for the way in which they have responded to this Statement. I should like to say that I concur very much with what the noble Lord, Lord Beswick, said at the end of his remarks. I think the moral to be drawn from these events is the need for rapid action on a multilateral basis towards a reinforcement of the whole world monetary system. That, as I repeat, is the aim which my right honourable friend the Chancellor of the Exchequer will have in his mind at the discussions in the Committee of Twenty next month. I am afraid that I have no additional information to give in reply to the noble Lord about what countries, if any, may follow the United States and the dollar at this stage. I will, of course, make a point of seeing that the noble Lord is informed on that as soon as any information reaches me.
Both the noble Lord, Lord Beswick, and the noble Lord, Lord Wade, asked about an assessment from me on the effects of this devaluation on our balance-of-payments position on the prices position and, indeed, how it affects the Common Agricultural Policy. All I can say now is that it was a central purpose of my right honourable friend the Chancellor of the Exchequer, in the intensive consultations that he has been conducting over the weekend, that the package of proposals eventually arrived at should enable the United Kingdom to preserve its international competitive position, and also should not interfere with our basic strategy of controlling inflation. But there are only a certain number of foreign exchange markets open at the present time; the rates which are being quoted reflect the disturbances of the last few days, and we do not know at this moment precisely where the sterling rate, for example, will settle. Therefore it is very early—in fact, it is quite premature at this moment—to try to strike a judgment as to the precise effects on our balance-of-payments prospects. Similarly, any effect on prices depends on a large number of factors. I would come back to saying that my right honourable friend judges that, in the main, this package of proposals is as satisfactory as anyone could have expected in the last 48 hours, and it reflects his determination that we should preserve our competitive position and our ability to control inflation.
1421 As regards floating generally, this is a matter on which the monetary experts agree very often to disagree. I think that it is the view of Her Majesty's Government, at least at present, that there is a great deal to be said for a general system whereby there are fixed but adjustable parities. However, I think it might be inadvisable to get into a long discourse on that subject at the present time.
§ LORD BESWICKMy Lords, while agreeing with the noble Earl that prices and rates generally have not settled down, and accepting that he cannot give any precise answer at the moment to some of the questions I asked, would he not agree that our obligations under the E.E.C. arrangements will be increased as a result of this further devaluation of the pound sterling? Are we to understand that there will now be further negotiations about the C.A.P. payments? Regarding the question of the movements of other countries, the noble Earl says that he has no information as to which other countries, apart from Italy and Japan, will be changing their parity rate. But can he not say anything about Commonwealth countries? May I ask whether the Commonwealth countries were consulted, and whether he has any information at all about them?
EARL JELLICOEMy Lords, all I would say on the sterling area and the sterling agreements is that the agreements we have remain in operation, and we are remaining in consultation with the sterling area Governments about the implementation of the guarantee while sterling is floating. So far as consultation with the Community Governments are concerned, if I may I will content myself with saying that my right honourable friend will be in Brussels to-morrow in consultation with his colleagues.
§ LORD BALOGHMy Lords, will the noble Earl tell us why, in his opinion, this agreement will be longer lasting than the Smithsonian Agreement, which for us lasted about six months and for the rest only 18 months? Will he tell us why he thinks there can be a satisfactory international monetary system erected on the basis of a speculative international capital market the Eurodollar market which now tops the 100,000 million dollar mark and is completely uncontrolled and apparently uncontrollable? Why does he 1422 think it is possible to keep a planned international system going when the large multi-national companies can throw tens of thousands of millions of dollars around the world without anybody being any wiser? I wonder why his right honourable friend is so confident.
It seems to me that this situation has arisen just as we expected and predicted that it would, and unless a complete change takes place in the management of the international capital market there is not a hope that this situation will be more stable or more prosperous for us. The noble Earl says that he hopes the anti-inflation measures will not be imperilled, but does he not know that automatically our food prices are now going up proportionately as a result of our entry into the Common Market? How can he think that this will not affect the efficiency of the anti-inflationary policy? The policy is inflationary, not anti-inflationary.
EARL JELLICOEMy Lords, I should have to make a very long speech in order to answer the rather long speech of the noble Lord, Lord Balogh. I was not asserting that these arrangements would necessarily last longer than the Smithsonian arrangements. What I was saying was that they were as satisfactory an outcome as I think any of us would have conceived, given the depth and intensity of the crisis to which the world monetary system has recently been exposed, and that they offered a satisfactory platform, not only for the forthcoming talks of the Committee of Twenty in Washington next month but also for the larger and vitally important negotiations which are likely to take place later this year between the United States and the Community. However, I would not dissent from the burden of the noble Lord's remarks if they point the way to the need for reinforcing the world monetary system. On that point I think we are all agreed.
§ LORD HANKEYMy Lords, as the enormous capital movements unwind, no doubt causing secondary turbulences as they go, will the Government ensure that the minimum possible barriers to trade are erected by the various people in defence?
EARL JELLICOEMy Lords, as a loyal member of the world trading system, we shall certainly do our best.
1423 We wish to have as free movement as possible, but these are not the easiest possible times.