Exchange Rate (Hansard, 14 December 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)
My Lords, the Government do not comment on day-to-day movements in the exchange rate as this may have undesirable effects on the stability of sterling. The Government's objective is a stable and competitive exchange rate in the medium term. The best contribution the Government can make to this is to maintain sound public finances and low inflation.

§ Lord Barnett
My Lords, I thank my noble friend for that reply. I assume it means that the Chancellor of the Exchequer does not have any plans. Has my noble friend seen what the Governor of the Bank of England, Mervyn King, said to the Select Committee on Economic Affairs of your Lordships' House a few months ago? He said that he was concerned and that if the dollar continued to fall he would be bound to see what further action he should take. As the dollar has continued to fall, does his reply mean that the Chancellor has offered no advice to the Governor on what action he might take?

§ Lord McIntosh of Haringey
My Lords, there is a distinction between the Governor of the Bank of England and the Chancellor. The Governor of the Bank of England and the Monetary Policy Committee are responsible for short-term interest rates. They do this on the direction of the Chancellor, a situation that has been unchanged since 1997. I do not expect it to change in the near future.

§ Lord Taverne
My Lords, the Government must be aware of the serious dangers posed to international financial markets by the policy of benign neglect of exchange rates. Indeed, in not dissimilar circumstances, in the 1980s an agreement was reached by leading governments—including a Republican administration—which resulted in the Plaza agreement and the Louvre accord. Should it not be a primary objective of the Chancellor's chairmanship of the G8 group to try to achieve the kind of co-ordination of international policy that was achieved in the 1980s?

§ Lord McIntosh of Haringey
My Lords, the noble Lord, Lord Taverne, clearly has a longer experience of these matters than I do. I congratulate him on it. But the phrase "benign neglect" seems to assume that if an alternative policy of intervention were to be pursued it could have a significant effect on exchange rates. In fact, as the noble Lord knows, movements in international currency markets are many times larger than the resources of governments to carry out effective intervention.

§ Baroness Noakes
My Lords, the Minister might not want to comment on current exchange rates but the Government must have made assumptions about them, otherwise they could not have produced the figures in the recent Pre-Budget Report. Will the Minister say what those are?

§ Lord McIntosh of Haringey
My Lords, we shall have an opportunity to debate the Pre-Budget Report at length on Thursday, when I shall be happy to respond to the question of the noble Baroness, Lady Noakes. It is not appropriate to do so in the rarified atmosphere of Starred Questions.

§ Lord Tomlinson
My Lords, do my noble friend or Her Majesty's Government have any view about the Commission's attitude towards enforcing the stability and growth pact, especially as this rather slack monetary policy impacts directly on both euro-sterling exchange rates and euro-dollar exchange rates?

§ Lord McIntosh of Haringey
My Lords, I congratulate the noble Lord, Lord Tomlinson, on his ability to bring the issue of Europe and the stability and growth pact into a Question about exchange rates. It almost equals that of the noble Lord, Lord Pearson of Rannoch. I do not accept the assumption behind the noble Lord's question.

§ Lord Roberts of Conwy
My Lords, does the Minister agree that whatever the Government's policy in this area—declared or undeclared—the effect is that it is good for financial services, good for government borrowing but very poor for manufacturing?

§ Lord McIntosh of Haringey
My Lords, I thought I had made it clear in my first Answer that what is good for exporters, whether of services or of goods, is to have a stable and competitive exchange rate in the medium term and to maintain sound public finances and low inflation. Stability rather than any single particular rate is the key. I speak as one who was an exporter for many years.

§ Lord Sheldon
My Lords—

§ Lord Dykes
My Lords, as the euro has become one of the most—

Noble Lords
Order!

§ The Lord President of the Council (Baroness Amos)
My Lords, I suggest that we hear from these Benches and then from the Liberal Democrat Benches.

§ Lord Sheldon
My Lords, is not the serious problem the balance of payments that we see with a very high exchange rate? It is not just a question of the imports or the exports because we see here that exports can be made very difficult to achieve—that is the normal criticism made of this very high exchange rate—and that as imports come in cheaper they affect our manufacturing industry greatly. The problems for our manufacturing industry caused by imports at low prices are always underestimated. Whereas our exports are of course affected by the exchange rate, our industry suffers even more from imports than from the failure to achieve the exports that we would normally expect to see.

§ Lord McIntosh of Haringey
My Lords, I am grateful for that analysis, but I question whether the relationship between our balance of payments and exchange rates is as clear-cut and as simple as the noble Lord, Lord Sheldon, is suggesting. Export growth is influenced by economic growth, as well as by exchange rates. Indeed, economic growth is a more important factor than exchange rates. On the whole, when exporters are considering their policies and there are fluctuations in exchange rates, they tend to accept, at least in the short term, that they have to export in the currency of the country to which they are exporting. If they are wise, they hedge against any losses that may be involved.

§ Lord Dykes
My Lords, as the euro has become one of the most successful currencies in the world in recent times, will the Government explain very carefully again, so that we all understand, why they did not join the euro in the winter of 1997?

§ Lord McIntosh of Haringey
My Lords, the noble Lord, Lord Dykes, has a very limited view of what is a successful currency. There are those on the Official Opposition Benches who think that a high exchange rate is not necessarily of economic benefit. Indeed, there are circumstances when that is the case.

§ Lord Peston
My Lords, is my noble friend as puzzled as I am about the behaviour of the Chinese economy? It is, I believe, a communist country, but surely Chairman Mao would be turning in his grave if he realised that the only thing propping up the dollar and, for that matter, saving the whole of world capitalism is Chinese investment abroad. Are the British Government not in the least concerned that the Chinese regime may one day give up its conservatism and become extreme left-wing socialist?

§ Lord McIntosh of Haringey
My Lords, I would love to answer that question, but the Question on the Order Paper is about the value of the pound sterling exchange rate against the dollar and the euro. I would enjoy as much as anyone speculating about why the Chinese economy insists on building up assets in dollars, but I think that it is beyond the scope of the Question.