Yankee Dollar, Go Home

Britain, which had to devalue its currency in 1949 to encourage the inflow of dollars, has decided that dollars are no longer needed so badly. Last fortnight the Bank of England put an end to a special inducement for foreign capital by cutting the discount rate (at which it lends money to private banks) from a relatively high 3 1/2% to 3%. Last week West Germany's central bank followed suit. The effect was to reduce the interest that dollars (and other currencies) can earn by going abroad. At the same time, the cut meant lower interest rates on British and West German commercial loans, thus more borrowing by domestic business for expansion and reconstruction.

This economic muscle-flexing in Britain and West Germany was no signal that the two countries' economic troubles are over. British businessmen can borrow money at rates considered normal, i.e., about 4% or 5%. But in West Germany the demand for reconstruction capital still so far outruns the supply that business must frequently pay as much as 8% or 10% in interest. Moreover, both countries still need U.S. economic help to keep their books in balance. But in view of dwindling U.S. aid, international bankers took heart last week at the growing signs of British and West German strength.

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