§ 44. Mr. Alexander W. Lyon
asked the Chancellor of the Exchequer whether he will make a statement on his official discussions with other Finance Ministers at The Hague on proposals to increase world liquidity.
§ Mr. Callaghan
Although substantial differences still exist, further progress 61W was made at The Hague on the principles of creating additional liquidity and on the next steps to be taken to widen the discussions.
Following is the communique:
Communique of the Ministerial Meeting of the Group of Ten in The Hague, 25th and 26th July, 1966The Ministers and Central Bank Governors of the ten countries participating in the General Arrangements to Borrow met in The Hague on 25th and 26th July under the chairmanship of Mr. Anne Vodeling, Minister of Finance of the Netherlands. Mr. Pierre-Paul Schweitzer, Managing Director of the I.M.F. took part in the meeting, which was also attended by the Secretary-General of the B.I.S., the Minister of Finance of Switzerland, and the Secretary-General of O.E.C.D.2. The Ministers and Governors considered a report of Working Party 3 of the O.E.C.D. on possible improvements in the balance of payments adjustment process. They expressed their appreciation of the O.E.C.D.'s work on this report. Recognizing that the smooth functioning of the international monetary system as well as the general confidence in its stability, depend very much on progress towards the elimination of imbalances, they agreed that improvements in the adjustment process were needed and possible. They expressed the hope that Working Party No. 3 would continue to work for improvements in this field on the lines indicated in its report.3. The. Ministers and Governors also discussed a comprehensive report by their Deputies on other possible improvements in the international monetary system, including arrangements for the future creation of reserve assets, as and when needed. This report also contains several suggestions for improving the existing system otherwise than through reserve creation. These suggestions should be given further study by the appropriate bodies. The report will be published in the next few weeks.4. As regards international liquidity, the Ministers and Governors were in full agreement that there is at present no general shortage of reserves. On the other hand, it was thought unlikely that the existing sources of reserves would provide an adequate basis for world trade and payments in the longer run Large United States deficits are not a satisfactory source of future reserves for the rest of the world nor are they acceptable to the United States. Moreover gold alone is not likely to supply sufficient additions to monetary reserves in the future. Consequently it was agreed that, at some point in the future, existing types of reserves may have to be supplemented by the deliberate creation of additional reserve assets.5. As to the way in which such a future contingency could be met, the Deputies, in their report to the Ministerial Group have achieved a consensus on a number of basic principles and elements of any such contingency planning, although they have not reached agreement on all points or presented a fully developed plan. Among the agreed basic principles, 62W the Ministers and Governors particularly stressed the following:—Deliberate reserve creation, when decided upon should be neither geared nor directed to the financing of balance of payments deficits of individual countres, but should take place on the basis of a collective judgment of the reserve needs of the world as a whole.All countries have a legitimate interest in the adequacy of international reserves. However, a group of major countries with a key role in the functioning of the international monetary system has a particular responsibility for the financial backing for any newly created reserve assets. Consequently, there is agreement that deliberately created reserve assets, as and when needed, should be distributed to all members of the Fund on the basis of I.M.F. quotas or of similar objective criteria. The major countries should be ready to provide adequate financial backing through the extension of special lines of credit to the Fund or through commitments to accept and hold such reserve assets.6.(a) There should be a clear distinction between the establishment of any contingency plan and the activation of that plan. The prerequisites for such an activation should be laid down. They should include the attainment of a better balance of payments equilibrium between members and the likelihood of a better working of the adjustment process in the future.(b) Organisational arrangements for decisions on the activation of any contingency plan and for subsequent decisions on reserve creation may vary according to the type of scheme adopted. Whatever scheme is adopted, it is essential that the organisational arrangements for such decisions should reflect two principles, namely—(a) the interest of all countries in the smooth working of the international monetary system, and (b) the particular responsibilities of a limited group of major countries with a key role in the functioning of the international monetary system and which in fact must provide a substantial part of the financial strength behind any new asset. This could best be achieved by a procedure whereby proposals for reserve creation would be considered both by the limited group and by the Fund. The requisite majorities and voting procedures would have to give due recognition to the two principles set out above and this recognition would be a necessary condition for any decisions on reserve creation.(c) One delegation did not agree with the views set out in sub-paragraphs (a) and (b).7. The Ministers and Governors instructed their Deputies to continue their studies on a number of unresolved questions. However they also thought it appropriate to look now for a wider framework in which to consider the questions that affect the world economy as a whole. With this in view, the Ministers and Governors, after consulting with the Managing Director of the Fund, recommended a series of joint meetings in which the Deputies would take part together with the Executive Directors of the Fund. The Ministers and Governors 63W of the Group of Ten would expect a report from their Deputies not later than the middle of 1967. One delegation did not join in making the aforementioned recommendation.
§ Mr. Arthur Lewis
asked the Chancellor of the Exchequer whether he will make a statement on his recent visit to The Hague.
§ Mr. Callaghan
I would refer my hon. Friend to the reply I gave to my hon. Friend the Member for York (Mr. Alexander W. Lyon) this afternoon.