U.S. Proposal

The U.S. presented last week its own tentative plan for stabilizing postwar exchanges and promoting world trade. The American proposal was the answer to British Economist John Maynard Keynes's plan for setting up a postwar International Clearing Union (TIME, April 5).

The American plan would create a $5 billion stabilization fund, backed largely by gold. The fund would have power to fix exchange rates and to regulate exchange transactions, with the U.S. retaining effective veto power over its decisions. Author of the new proposal was the Treasury's hard-working economist, Dr. Harry D. White.

First international reactions were anything but reassuring. U.S. Congressmen fumed because their first information came from London, talked darkly of a coming currency battle over control of America's $22 billions gold hoard. Lost in the initial outburst of opinion was the fact that the White plan and the Keynes plan were in 100% agreement on the need for stable exchange rates. Both called for unfettered world trade, for international fiscal cooperation. The plans differed mainly in the technical means for attaining these objectives and basically in that each was an international projection of a plan that first protected each country's own national interests.

Unitas and Bancor. The White plan is an expansion of the stabilization fund technique which the U.S. borrowed from Britain during the '30s. The Keynes plan calls for the setting up of a true international bank--a kind of Federal Reserve System for the World.

Under the White plan each nation would contribute to the formation of the $5 billion fund either in gold, in its own currency, or in some cases in its securities. In return each nation would get credit on the fund's books in terms of a unit called the Unitas (worth $10 at the dollar's present gold valuation).

The Keynes proposal asks no initial contribution of capital; its Clearing Union would start out with no tangible assets. It would simply issue credit facilities (a "line of credit") in terms of a unit called the "bancor" on which each nation could draw for foreign exchange up to specified quotas. A nation's quota would be based on its world trade in prewar years.

Under the operation of both plans a nation would find its credit with the American Fund or British Clearing Union increasing or diminishing according to the trend in balance of payments. If, for instance, Britain were importing more than it was exporting, its holdings of Unitas (or bancor) would tend to diminish (other factors being equal). If the U.S. were exporting more than it was importing, its credit in Unitas (or bancor) would tend to increase.

In either situation both the White fund and the Clearing Union would try to correct the trade discrepancy. Significantly, however, the White plan places most emphasis on a nation which is constantly a debtor. With an eye on the U.S., Keynes insists on the responsibility of a creditor to accept, imports and lower tariffs.

Gold and Power. The two plans differ significantly, and nationalistically, in their treatment of gold. The Unitas is given a fixed and inflexible value in terms of gold. The gold value of the bancor may be varied by the Clearing Union. And while the Unitas would be redeemable in gold, the bancor would not. "The purpose of the Clearing Union is to supplant gold as a governing factor, but not to dispense with it," said Keynes, thus exactly citing the present British gold position.

Control of the American fund would be determined by the amount of gold and other capital which a nation put into it. But no nation could hold more than 25% of the votes. Since its board must have an 80% majority to reach any important decision, this would place an effective veto in the hands of the U.S. Keynes, on the other hand, proposes that voting power in the Union be more democratically based on a nation's trade. He specifically stated that "management of the institution must be genuinely international, without preponderate power of veto."

International Opinion. In its appeal to internationalism, the Keynes proposal struck a broader, more philosophic note than the American proposal. By emphasizing the power of veto, the White plan suggests a fatal Anglo-American split, which would doom any plan.

Opinion definitely divided on the touchy question of gold. Some termed the White plan "sounder," pointed out that, since the bancor is nonconvertible to gold, the Keynes Clearing Union might overexpand credit. Keynes himself terms his plan "expansionist," but points out that the risks of deflation (such as was experienced in the '30s) are just as great.

The White plan's emphasis on gold was likely to get political approval. But expert O. M. W. Sprague, former economic adviser to the Treasury and to the Bank of England, came out for Keynes, termed the White plan overcomplicated, warned that nations with little or no gold would certainly resist any attempt by the U.S. to use the metal for purposes of domination.

The best advice came from Geoffrey Crowther, editor of the London Economist. Said he: "None of these differences are vital. . . . The next stage is to put the two plans alongside each other, and work out a United Nations plan."

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