Toward Stability

The United Nations were beginning to put to use the tools they had fashioned for world reconstruction. Now it was Bretton Woods. Thirty-five of the 44 nations that had signed the Bretton Woods agreements became charter members by ratifying before the Dec. 31 deadline. Nine others (most conspicuous absentee: Russia) could join later if their applications were approved.

Basic Problem. The new tool could be used to further any kind of trade and any kind of world its dominant users wanted. Its avowed purposes were to promote world trade by helping stabilize exchange (through the Fund) and by financing reconstruction (through the Bank). But the Fund can stabilize the relationship between currencies only if the currencies themselves remain reasonably stable.

Under the new plan, member nations must fix the par value of their currencies in terms of gold or U.S. dollars, within a time limit fixed by the Fund, and cannot later revise the value more than 10% upward or downward without the approval of the Fund. France, by devaluing the franc, has come close to a realistic value. In many another country official valuations are nearly meaningless. Poland, which has hopefully signed the Fund agreement, still keeps an official value of 19-c- on the zloty, but recently a dollar would bring as much as 600 zlotys in Stettin. Greece's official value of about 500 drachmas to the dollar is far below the black-market price, which was steadily rising. China's currency is so wildly erratic that no wise trader will accept it.

Somehow the United Nations (and defeated countries who aspire to join later) must try to adopt realistic budgets, stabilize prices and wages, bring exports & imports into reasonable balance--all factors affecting the purchasing power of currency. If they succeed, the Fund can help them. If they fail, the Fund offers no remedy, and Tory M.P. Oliver Lyttelton's quip will hold true: "It is not the least good putting up a mosquito net to try to keep out a charge of wild elephants. . . ."

Most European nations face the same general difficulty--a shortage of goods and a tremendous amount of paper currency turned out by Nazi printing presses. Common remedy: invalidate some of the existing currency by requiring it to be exchanged for new currency, part of which is blocked in banks or postal savings, or taken by the Government in forced loans. It has worked well in some cases, but plenty of wild elephants have yet to be tamed.

Strong Objector. Great Britain, which was neither very worried nor very hopeful about Bretton Woods, was just going to do her damnedest to make Bretton Woods and its related arrangements work well for Britain. Bretton Woods was part & parcel of the larger deal with the U.S. whereby Britain got a loan she badly needed, and in return promised to relax the exchange controls and imperial preferences which had bolstered her trade within the sterling area. British objections were aimed at two features of the Bretton Woods plan:

(1) LIMITATIONS ON THE POWER TO DEVALUE. A nation's power to devalue its currency has long been a favorite weapon in trade war. Cheaper pounds or francs mean that exports from Britain or France are cheaper, imports more expensive. The British were reluctant to give up the unlimited power to devalue at a time when they must greatly expand their exports to meet old and new debts. (2) FREE CONVERTIBILITY OF CURRENCIES. Britain owes about $16 billion in foreign debts, mostly within the sterling area and therefore payable only in sterling. Britain had expected to have about five years to put free convertibility into effect, which would permit debtors to collect in dollars or other currency as well as in pounds. But U.S. loan negotiators had insisted that, with the $3,750-million line of credit, Britain would have plenty of dollars, and must make all the new and part of the old sterling balances freely convertible within a year. Her debtors (like India and Egypt) could then claim some of the dollars Britain so badly needed for her own reconstruction.

The British Government had finally agreed, in order to get the dollar loan. France, too, by ratifying Bretton Woods and devaluing the franc, showed that she would try to fit her economy into a system of multilateral trade.

Chief Abstainer. Whatever the difficulties or doubts of its members, Bretton Woods was now officially in operation--though it would not be ready to do business for about five months. The failure of Russia (which is not a big world trader) to ratify within the time limit was regretted in Washington and London as an unfortunate sign of noncooperation, but no one thought that it would make much difference. The Fund has little usefulness for a totalitarian economy; its object is to make private trade possible.

The Russians offered an improbable official explanation for their abstention: they wanted more time to study the plan. It was more likely that they had simply decided not to show their hand until the dollars which they hope to get through a U.S. loan are securely in Russian pockets.

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