International Monetary System

– in the House of Commons at 12:00 am on 18th March 1968.

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Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford 12:00 am, 18th March 1968

The House will have noted, I hope with satisfaction, the communiqué issued in Washington yesterday from the conference of the active contributors to the former Gold Pool. The Gold Pool is now at an end and has been replaced by the following arrangements:

  • First, the seven Central Banks will no longer supply gold to any free market.
  • Second, they have stated that they no longer feel it necessary to buy gold from the market.
  • Third, they will not sell gold to monetary authorities to replace gold sold by those authorities to the market.
The co-operation of other Central Banks in these policies has been invited.

In order to give time for these new arrangements to settle down, we have agreed to close the London Gold Market for the next two weeks. While I recognise the difficulties this causes for the London Market, I am sure that it was a necessary step towards restoring normal conditions. As the House will be aware, all other markets reopened in London this morning.

The conference also expressed its support of the policy of the United States Government to continue to buy and sell gold at the existing price of $35 an oz. in transactions with monetary authorities. They also agreed—and the House will appreciate the importance of this—to cooperate even more closely than in the past to minimise flows of funds contributing to instability in exchange markets and to offset as necessary any such flows that may arise; and recognising the importance of sterling in the international monetary system, they agreed to provide further facilities which have brought the total of credits immediately available to the United Kingdom authorities to $4 billion. This includes the I.M.F. standby of $1·4 billion which we are free to draw on in full should the need arise.

This agreement represents a signal achievement. The gold stocks of a very important part of the international monetary system have been conserved for monetary use and an opportunity has been created for the system to be developed in an orderly fashion and to be put on a more rational basis.

Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West

Is the right hon. Gentleman aware that, although we are grateful for that statement, the serious implications of recent events are best left to the Budget speech and the debate, and that I will deploy my criticisms then? I will confine myself to two main points. First, although I agree that the two-tier system is the best in present circumstances, would the right hon. Gentleman agree that it is not a long-term fundamental answer, but that it buys time? Would he therefore review, either in his own speech on the Budget or in some other speech in the Budget debate, the Government's thoughts on what the final solution should be, including, in particular, a reference to the scheme of special drawing rights?

Second, he must be aware that it caused some surprise that massive support had once more to be offered to the £. I put this tentatively to him, but is there not some danger that this, like so many other recent statements, might be psychologically unsound and, therefore, the reverse of reassuring? Would he finally clear up one point? Sir Leslie O'Brien said yesterday, when asked if we would draw on the standby credit, "I would not be surprised". On the other hand, the Chancellor said in his statement on 30th November: 'We have no intention of drawing on this credit in the near future."—[OFFICIAL REPORT, 30th November, 1967; Vol. 755, c. 643.] Therefore, what is the position now? Has he drawn on it or does he intend to?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

On the right hon. Gentleman's first point, I know that he will reserve his main points for his Budget speech, and I have no doubt that he will understand that I will reserve what I say in reply to his invitation to my speech. I think that the two-tier system is the best thing which could have come out of Washington, and I see no reason why the arrangements should not be successful in restoring stability, at least for a considerable time. The gold reserves of the countries co-operating in the pool are vast, and there is great importance to be attached to their determination to work together to maintain the price and the present system. I also attach, as I think did the members of the conference, great importance to the steps which the United States Government are taking, as well as those which we are taking, to restore our balance of payments situation.

The right hon. Gentleman's second point was about support for sterling. He and the House know, I think, that sterling, as an international currency, is bound to be involved in international problems such as arose at the end of last week. I think it was right, in these circumstances, that we should show that we had massive reserves behind us.

As to the I.M.F. standby, the view which I took and continue to take is that it would be utterly wrong to draw on the I.M.F. standby as a subvention to a British standard of living which was not being earned by our trading performance abroad. However, of course, the purpose of the standby—there would be no point in having it otherwise—is that it should be ready for use if necessary to deal with spasms in the international currency market such as we saw at the end of last week. The standby has not yet been drawn upon, but it could be, if necessary, at short notice.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Does my right hon. Friend agree that the way to prevent speculators causing chaos of the sort seen recently is to use the time to get away from using gold, sterling and the dollar as currency units? Would he therefore instil a sense of urgency into international circles by getting a new world currency unit, something more ambitious than the S.D.R.?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I certainly attach great importance to activating the S.D.R. scheme, and possibly going beyond it. However, it is no use saying that we are going to abandon all three existing international units of exchange until we have something which is not merely on the horizon but in our hands to put in its place.

Photo of Major Sir Henry D'Avigdor-Goldsmid Major Sir Henry D'Avigdor-Goldsmid , Walsall South

Is the hon. Gentleman aware that, despite the optimism of his statement, this is indeed the moment of truth for the dollar and for sterling and that, by the tenor of our affairs, which he will deploy tomorrow, and by the conduct of American affairs, those currencies will be judged, and that the judgment will be taken by those who seek only security and not national advantage?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I am certainly aware that this is an important and delicate moment for the whole international monetary system. I think that we, as a nation which has a large part to play in that system, have a great duty to put our affairs right, and I believe that the United States also has a position to play so far as this is concerned. I am bound to say to the hon. Gentleman that I approach this problem also from the point of view that the interest of all of us is or should be that of the stability of international money and the consequent stability of international trade.

Photo of Mr James Dickens Mr James Dickens , Lewisham West

Can my right hon. Friend tell the House why the Government have once again chosen to incur a further standby credit for this country in preference to reintroducing exchange controls to protect the £ against speculative pressures? What will the cost of this standby credit be? Is a new letter of intent in course of preparation? Will there be no end to this process of continually incurring this sort of needless burden for the people of this country?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

No, there is no question of a new letter of intent. The Central Bank facilities have never involved and do not involve any question of undertakings or letters of intent. On my hon. Friend's other point, I do not think that the remedy which he proposes would have helped in the situation with which we were confronted, in which it was extremely important to retain the greatest possible degree of international co-operation that we could.

Photo of Mr Jeremy Thorpe Mr Jeremy Thorpe , North Devon

With the realisation that a failure this weekend could have had a traumatic effect on the economy of this country and particularly on the maintenance of full employment, is the right hon. Gentleman aware that there will be relief at this agreement and appreciation for the part which representatives of this country played in arriving at the bargain? I have certain short-term questions to put to him. First, does he regard the American undertaking to maintain the price of 35 dollars an ounce as of a permanent or temporary significance? [Interruption.] Since this is a question to which at least the Chancellor will have addressed his mind in the last three days, does he regard the undertaking as one of permanent duration or of temporary duration? What are the implications of the latest standby credit for our freedom of manoeuvre in thiscountry? Third—[HON. MEMBERS: "Too long."] If I may put a third and final short question to the Chancellor—what effect does it have on our trading relations with the dollar countries?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I agree with the right hon. Gentleman at least to the extent of being extremely glad to have the opportunity of expressing my appreciation to the representatives of the United Kingdom who played a significant, although for them exhausting, part in the negotiations in Washington during the weekend. As to the United States undertaking to preserve the price of gold, this is an undertaking given unilaterally and with complete conviction by the United States, and I accept it completely.

The standby credit in no way affects our freedom of manoeuvre. I would, if I may, taking up a point which I might have made in reply to my hon. Friend the Member for Lewisham, West (Mr. Dickens) which was not among his other questions, say that should it be necessary for us to draw in any way upon this credit it will not, of course, increase our total indebtedness. It would be used only in order to relieve other debts which were reduced by money going across the exchanges.

As to our trading relations with the dollar area, this agreement affects not only our trading relations with the dollar area but our trading relations with the whole of the world, and indeed the trading relations of other parts of the world with other parts of the world, and it offers, I think, a more hopeful prospect than looked likely three days ago.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

Does my right hon. Friend accept that the arrangements which have been made depend on considerable restraint being shown by various Central Banks in not selling gold and making a profit from it after receiving it from the American Treasury? Bearing in mind the number of small Central Banks, is this not too optimistic an assumption? Therefore, would he ensure that the interim period is used properly to make sure that there is some long-term solution to this problem, since this seems like no such one?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

The arrangement at the moment is between the seven Central Banks which took part in the Washington Agreement. Others are invited to join if they wish, but by joining they would have to accept the rules of the club, and were they to sell gold other than to monetary authorities, the United States and the other original member countries would not sell gold to them to replenish their stocks. That is a very important position indeed, although, while I would think it a grave mistake by the House to regard it as a purely temporary arrangement, I would equally think that there are still considerable problems to be solved in international liquidity, and I certainly hope that we and other countries can play our part in getting a constructive, long-term solution to these problems.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

Would the right hon. Gentleman look again at his decision to keep the London Gold Market closed until 1st April? If all gold markets in other countries are to be open, will not this merely mean a substantial, possibly permanent, loss in invisible income to this country? Is there any reason to suppose that the London Gold Market is less capable than others of coping with the immediate problem?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

No, but the London Gold Market does have a very special position. It is the most important in the world. It is the gold market through which the Gold Pool operated. There are advantages in being the most important market in the world, but there is also the disadvantage that when a situation like this arises it may be more necessary to take steps to allow a stabilisation to occur in that market than elsewhere. Although I attach importance to this, and it was certainly the unanimous desire of the Conference that the London Gold Market should be closed for a period—[Interruption.] In spite of the importance which I attach to the London Gold Market, which will certainly reopen, I am bound to say that I attach still more importance to international monetary stability in present conditions.

Photo of Mr Alf Morris Mr Alf Morris , Manchester Wythenshawe

I thank my right hon. Friend for his statement, but can he indicate whether the Washington meeting is to be followed by a meeting of Finance Ministers for the purpose of longer-term thinking and discussion on the world monetary system?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

There is already in prospect a meeting of the Group of Ten at Stockholm in ten days' time which I propose to attend myself. I hope that this meeting may begin a process of advancing further on the points which my hon. Friend has in mind.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire West

Reverting to the point made by my right hon. Friend the Member for Barnet (Mr. Maudling) about keeping the Gold Market in London shut until 1st April, does not the right hon. Gentleman anticipate that this is likely to lead South Africa and other gold-producing countries to sell in Paris and Zurich instead of London?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

There is certainly a possibility of this. [Laughter.] Hon. Members opposite must keep a sense of proportion. As I have said, the London Gold Market is of importance and value to this country, but, compared with the importance and value of the stability of the international monetary system, it is one to a thousand. It would not have been right for us to have taken an uncooperative attitude in this matter. I am anxious and determined that the London Gold Market should open as soon as is reasonably practicable.

Photo of Mr David Ginsburg Mr David Ginsburg , Dewsbury

My right hon. Friend has just made an important statement about other Central Banks. Would he consider paying a visit to Paris in the near future to discuss the future with the French finance authorities?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I hope to see the French Finance Minister in Stockholm in 10 days' time. I look forward to an exchange of views with him, as do Finance Ministers of the other members of the Group of Ten, but I am not sure that at present bilateral discussions would be particularly useful.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Does the right hon. Gentleman know what the attitude of the South African Government and the other gold-producing countries will be to these proposals? If not, will be try to get to know and make a statement to the House as soon as possible?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I propose to make a fairly substantial statement in the House on another matter tomorrow afternoon. In the meantime, I am not sure that I wish to enter into a further commitment.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

Can my right hon. Friend say whether South Africa was consulted about this? After all, we do not want to see South African gold all transferred to Paris. The position was pretty ticklish even before this.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I think that it is clear from what happened on Friday that, with the London Gold Market closed, the amount of gold deals is very greatly reduced indeed. The London Gold Market has facilities which it will retain. I hope that it can open and retain its business in a fortnight's time. South Africa was not represented by her central bankers at Washington. [HON. MEMBERS: "Was she consulted?"] No. This was a decision for us to take in relation to the whole world monetary situation.

Photo of Mr John Biffen Mr John Biffen , Oswestry

As the Washington arrangements to which the Government are now committed provide for a free market for private dealing in gold, can the right hon. Gentleman indicate when he will nullify the Exchange Control (Gold Coins Exemption) Order, 1966?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

No, I cannot, nor do I necessarily see why this change should lead to a difference in the position relating to United Kingdom or United States citizens about the fact that they should not buy gold.

Photo of Mr Norman Atkinson Mr Norman Atkinson , Tottenham

Would my right hon. Friend accept that the political future of this Government is now at the mercy of gold and currency speculators? Would he also accept that any attempt to placate speculators can be done only at the expense of wage earners in this country? Therefore, will he denounce the activities of these people and tell the House when it is his intention to introduce exchange controls to put an end to the antics of these people?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

What I accept, not now but always, is that not the political future of this Government but the economic future of this country is very closely bound up with a sensible international monetary and trading system. It did not need the events of the past weekend to teach me that, and I should be surprised if they were needed to teach my hon. Friend that. I cannot think that he believes that we can achieve a climate in which we can get the expansion of world trade which is essential to our future prosperity and the turn-round of our balance of payments by taking a purely inward-looking view of the present situation.

Photo of Peter Tapsell Peter Tapsell , Horncastle

Would the Chancellor accept that, while the new arrangements, which he has reported this afternoon, may well have the effect of persuading the short-term speculators in gold to take their profits and, therefore, provide a temporary respite, they are most unlikely to persuade the long-term hoarders to abandon their prejudice against paper currencies? Is he further aware that the distinction which he has been drawing between the stability of the gold arrangements and the stability of the international monetary arrangements is artificial? Would he, therefore, give great attention to the first point put to him by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod)?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

The hon. Gentleman asked me to accept so many and such complicated things that I am not sure that I can give him the assurance that I do accept them.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

While we accept that we must await my right hon. Friend's Budget statement before he reveals any long-term view, and while it is understandable that he cannot say very much now about the period beyond the interim period, may I ask him whether he would bear in mind that, if he so firmly rejects any unorthodox approach, a considerable body of opinion would be opposed to any policies of deflation and sacrificing the interests of ordinary people if the interim measures are not successful? Would he take special steps then to protect the interests of the people of this country?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

Certainly I regard it as my duty to protect the interests of the people of this country. But I cannot think of anything which would more surely lead to a danger of all-round deflation than the collapse of international monetary confidence.

Photo of Mr Stephen Hastings Mr Stephen Hastings , Mid Bedfordshire

What is to prevent South Africa from maintaining exactly the same level of gold dealings through Zurich and Paris during the next two weeks as she would otherwise have done if the right hon. Gentleman had allowed the London Gold Market to reopen?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

There is nothing to prevent South Africa from doing that. But, having been the centre of the London Gold Pool, and the Gold Pool having closed, as was I think right in the circumstances, it is for us to decide whether we should allow a period for the new situation to settle down. We have thought it right to do that.

Mr. J. T. Price:

Whilst my right hon. Friend's very cautious statement will, no doubt, be very favourably received in most parts of the House, may I ask whether he is aware that many of us are still sceptical about the future activities of speculators in this country and on the Continent of Europe? Would he agree that while we have condemned gunrunning as a treasonable activity, until we make the same condemnation of people who gamble with the future economic welfare of our citizens we shall not make much progress in the direction he has indicated?

Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford

I appreciate what my hon. Friend says, and, of course, we can all condemn anyone we like, but it is a little difficult for us to make effective laws against the nationals of other countries.

Several Hon. Members:

Several Hon. Members rose

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. Mr. Marsh, statement.