Orders of the Day — International Monetary Arrangements Bill

Part of the debate – in the House of Commons at 5:35 pm on 11th July 1983.

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Photo of Mr Bowen Wells Mr Bowen Wells , Hertford and Stortford 5:35 pm, 11th July 1983

I start by discharging two pleasant duties. First, I welcome you, Mr. Deputy Speaker, to your Chair. This is the first time that I have had the opportunity to speak under your chairmanship. Secondly, I welcome the new Economic Secretary to his post in the Government, upon which I congratulate him.

It is always a great honour to speak after the right hon. Member for Down, South (Mr. Powell). His logic is, as always, impeccable, as his training, education and experience in the House always lead us to expect. I have always found with the right hon. Gentleman that he proceeds from an unsound assumption for his argument to an unsound conclusion. I shall point out where his unfounded and illogical assumption has been made.

The right hon. Gentleman has stated that exchange rates are a reflection of the economic circumstances of a country and that the lessons learnt from the exchange rate need to be applied to the economy of that country. Is that a sound assumption from which to proceed? It is clearly not, because we can manipulate exchange rates. Exchange rates are manipulated, and are in the process of being manipulated now. They are manipulated at the moment by the use of interest charges in the domestic economies of the United States and this country. We saw it apply in the domestic economy of Great Britain in 1979, when the economic theorists' idea was that one controls money supply by putting up interest rates. However, exchange rates went up enormously as well, which resulted in the crisis of domestic manufacturers. It is not true to say that exchange rates are invariably and inevitably a reflection of economic activity in a certain country.

One could take this back to the 19th century, when exchange rates were related to a certain value of gold. Again, they were the reflection not of economic activity but of the price at which gold was exchanged. It is common ground, although I should like to know the view of the right hon. Member for Down, South on this, that we were right to abandon gold as a standard against which to judge exchange rates. Had we not abandoned that, we would restrict our money supply, and therefore the growth of world trade, to the value of a commodity in the ground, which is unacceptable to the international community because much of that gold is in the ground of South Africa or Russia.

We are looking—and the basis of the argument of the right hon. Member for Down, South is this, although he failed to make the point — at how we can apply economic and financial disciplines to international and domestic economies without having some more regulated manner of being able to value our money. If sound money, and the right hon. Gentleman is a great exponent of this, is the basis of growth of trade and investment in our domestic economy, so it must be, by logic, in world trade.

Let us go back into the history of this crisis to see what has happened. There is a malfunctioning of the international monetary system. The present crisis had its seeds and origins in the fact that we were ripping off the oil-producing countries during the 1950s, the 1960s and the early 1970s. We were paying for the scarce commodity of oil with an ever-devaluing international currency because the United States Government began to finance the Vietnam war without taxing their citizens to pay for it. They then began to print money, thereby devaluing the US dollar, which had been the foundation stone of exchange rate systems that had replaced gold. The fixed rate system that was introduced by the Bretton Woods conference was thereby undermined.

The oil countries naturally said that the rip-off must stop. Eventually, they got together and formed OPEC and jacked up the price of oil. That action produced the surpluses in the oil-rich countries, which were fed into the world banking system. A bank is both a lender and a borrower. It cannot lend money that it does not take in. Where was the banking system to find the projects and investments on which to lend money in order to repay the Arabs—the oil-rich countries—in a proper, undevalued currency? The newly emergent and fast-developing countries—especially the oil-rich—were the means. At that time, the investments made by those banks were sound, given that the price of oil remained at its then value.

However, oil prices are now falling, resulting in inability to repay loans. Those countries are then unable to repay the interest on those loans. The right hon. Member for Down, South is being absurd to suggest that a country can refuse to import oil, which is a basic source of energy. Many countries cannot refuse to buy it. Neither Britain nor a developing country can do that. They must continue to import oil to keep their countries going. The option of not importing oil was not open to developing countries. Therefore, they had to borrow.

The non-oil, developing countries are in the most extreme poverty and will not be affected by the Bill. The House should be considering the problem, to which the Economic Secretary did not address himself— I have complained not only to him, but to every Treasury Minister in the past three years—of the difficulties in the international monetary system. The Government should have the political will, formed through proper discussion and preparation, to lead an international discussion to regulate and apply the discipline of money in the economy. We must ensure that countries do not print money or over-inflate their economies. We must seek to improve on that.