Floating Exchange Rates

Oral Answers to Questions — Trade and Industry – in the House of Commons at 12:00 am on 5th June 1985.

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Photo of Mr David Knox Mr David Knox , Staffordshire Moorlands 12:00 am, 5th June 1985

asked the Secretary of State for Trade and Industry how many individuals and how many organisations have made representations to him in favour of floating exchange rates in the past 12 months.

Photo of Mr David Knox Mr David Knox , Staffordshire Moorlands

Does my right hon. Friend agree that international trade was facilitated and that the British economy worked much better when there were fixed exchange rates? What steps are the Governnent taking to encourage greater order in international exchange rates? To that end, when will Britain join the exchange rate mechanism of the EMS?

Photo of Mr Paul Channon Mr Paul Channon , Southend West

As my hon. Friend knows, the exchange rate mechanism of the EMS is not a system of fixed exchange rates. There have been fluctuations in the exchange rates between European currencies and the dollar. Of course all of us, especially exporters, would like a more stable exchange rate, but it is impossible to imagine that there could be a system of fixed exchange rates without enormous pressures on currencies when the rates become substantially out of line with true market values.

Photo of Mr Michael Meadowcroft Mr Michael Meadowcroft , Leeds West

How far would European financial stability assist this country in competing effectively with the United States of America?

Photo of Mr Paul Channon Mr Paul Channon , Southend West

As I said to my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox), in the last few months there have been enormous fluctuations in the exchange rates between European currencies and the dollar. We should not avoid that problem by joining the EMS.

Photo of Stephen Dorrell Stephen Dorrell , Loughborough

Is it not important to do everything that we can to limit those movements? Is it not unrealistic to expect an expansion of trade in manufactured goods across international frontiers if we cannot tell from one month to the next what revenue we shall receive for given export orders because of fluctuations in exchange rates?

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I understand and share my hon. Friend's concern about the problems faced by exporters, but it is not just this country which finds itself in that position. Every other country has the same system of floating exchange rates. We must try to obtain greater market stability by encouraging sound monetary and fiscal policies, not only in this country but in many others. That was one of the aims of the recent international summit.

Photo of Mr Bryan Gould Mr Bryan Gould , Dagenham

Does the Minister accept that there is no such thing as a clean float and that one of the dirtiest elements is the current level of interest rates, which in the last six months has helped to push up the pound against the yen by over 6 per cent, and against the deutschmark by nearly 5 per cent.? Does the Minister think that loss of competitiveness of that kind is helping British business men who are trying to sell in international markets?

Photo of Mr Paul Channon Mr Paul Channon , Southend West

It is impossible to please the whole House on this issue. Whatever the rate of the pound may be, the Opposition will criticise it. The real point is that it is impossible to move against market pressures on any one currency if those pressures are sufficiently strong. It is an illusion to imagine that fixed exchange rates can work in a situation of that kind. We saw what happened when the Labour Government tried to operate such a policy.