No fewer than eleven other European nations have taken the step with us. In the 1947 crisis the real trouble that we had to suffer was the demand for dollars from all over the world. It was not our own demands, but the demands of all the nations of the Western world, and they include Canada, and the South American countries. The right hon. Member for Bishop Auckland said:
All these countries … are running very short of dollars and are increasingly demanding from us sterling convertible at once into dollars, quite apart from any obligations of the American Agreement."—[OFFICIAL REPORT, 7th August, 1947; Vol. 441, c. 1667.]
The fact was that the pent-up hunger for dollars on the part of the free world, which was due to the war with all its deprivations and economic distortions, found an outlet through the channel of convertibility of sterling and burst its banks in a very few days. Thank goodness we can now look back on a month of sterling convertibility and can see that nothing of the sort has happened this time.
When the step was taken some people were nervous about it. The Financial Times, which welcomed it, said on 29th December:
The £ might be disturbed by the rumours about the German mark.
What has happened since 29th December is that not the German mark but the Belgian franc has been under suspicion and under pressure, due to events in the
Congo and elsewhere, but there has been no adverse reflection on sterling whatsoever. My information is that so far from our losing gold and foreign exchange as a result of the Belgian crisis, some may have been gained. This is a most marvellous and welcome change from the events of 1947 and one which we should not overlook.
The Leader of the Opposition described this move, in the words quoted by the Financial Times on that day, as follows:
One can only regard it as a surrender to creditor countries.
But with the best will in the world, one must pay one's creditors. It is characteristic of the right hon. Gentleman's attitude, and that of his hon. Friends, that a move by this country to meet its obligations is a surrender to creditor countries. I do not think that I need enlarge on that.
I also thought that, in the course of his very interesting speech, although he showed great expertise in all the matters which he discussed, the right hon. Gentleman was a little ingenuous when he spoke about commodity shunting and said, as I recall his words, "I have never yet been convinced whether it is more expensive for a country to stop commodity shunting by holding the rate or by allowing it."
The essence of commodity shunting is the sale of a commodity in the sterling area for dollars at a price and on terms where the proceeds do not come to the sterling area. Therefore, one is losing an asset which had a potential dollar value and one is not receiving dollars in exchange; and as one, two, or more intermediaries may have been making a profit en route I cannot see how the right hon. Gentleman, with his great financial knowledge and expertise, can bring himself to regard a transaction of that sort as otherwise than harmful and damaging to this country.
We have also had a point made about "hot money". It is a somewhat technical point but it has great relevance. At the moment in New York the rate for three month Treasury bills is 3 per cent. The rate back in London is 3⅛ per cent, but in the foreign exchange market sterling is at a discount, for three months, of a quarter of a cent, which represents a rate of interest of ⅜ths per cent. Therefore, any American bank sending money here to invest at 3⅛ per cent., and covering the forward exchange, would be receiving a net rate of 2¾ per cent., that is less than it could have got by leaving the money in New York.
This seems to me a major point. It proves quite conclusively that people are finding it convenient and satisfactory to leave their money here for the purposes for which they could find employment for it. Previously, when we have had high rates of interest here, they have been counter-balanced to a great extent by a corresponding discount on forward sterling so that in fact we have really enjoyed only "fairy gold". That is to say, we have had money here from America but the forward exchange has been covered so that the money was liable to be withdrawn in the three months and, although we had the use of it for three months, it was liable to melt away on the very day when we could use it. That is why it is called "fairy gold".
On the question of reserves, it is clear that no adequate explanation will be convincing to the public as a whole. It is generally thought that the monthly figures of gold and dollars now published by the Government are only part of the picture. The Leader of the Opposition has indicated that in his opinion the position is not as good as that which the Chancellor of the Exchequer indicated in the course of his most interesting and illuminating remarks. Whatever the position, neither of them spoke simply on the basis of the published monthly figures.
That leads me to ask the question whether any really useful purpose is served in present circumstances by publishing those monthly figures which are, from what has been said by all those eminent and hon. and right hon. Gentlemen, misleading in themselves. I should like to think we had reached the situation where, instead of publishing monthly reports on the Exchange Equalisation Fund, we should do so once every three months, and then finally we might reach the stage when people were no longer interested. After all, before the 1914 war we had no reserves, as such, and there was no Exchange Equalisation Fund. People were willing to leave their money here because it was fully convertible into any currency they wished. I feel that we are moving towards a similar position again, and in that belief I suggest that the monthly publication of a figure admittedly misleading no longer serves a useful purpose.
It is always a relief to hear from hon. Gentlemen opposite their great belief in maintaining the £ sterling and their determination to do so. We share that belief and determination but we sometimes express it differently. Incidentally, I do not think that all the remarks we have heard today will equally strengthen that admittedly tender plant.
In 1947, when the great disaster of premature convertibility struck us and we seemed to be bleeding to death, we still had a gold reserve of £600 million. Those were not devalued pounds. In other words, we had a gold reserve of 2,400 million dollars. The gold reserve today is not markedly different. For reasons which I have given already the figures are not very straightforward, but we can take it that we have 2,500 million dollars in gold.
In the words of the Financial Times, the available reserves amount to
…about twice the sterling balances held by, and the acceptance credits outstanding to, foreigners outside the sterling area…".
Although that is a very convincing amount to hold, it is not enormous and it cannot protect us against a permanent imbalance in our terms of trade.
Speaker after speaker has stressed the fact that this Measure has nothing whatever to do with balance of trade conditions. It will not alter the balance of trade one iota and despite the progress we are making, I am sure the actual gains by London in foreign exchange and other markets will be larger than the small figure of £100,000 mentioned by the Leader of the Opposition. They are obviously not sufficiently substantial in themselves materially to affect our balance of payments. Therefore, there can be no doubt of our duty as responsible Members to stress to our constituents the fact that the balance of trade position is everything to us, and that nothing we have done today has reduced its importance in any way.