No Convertibility Now

Two years ago, Britain's Chancellor of the Exchequer Richard A. Butler said he was planning to free the pound sterling and open the way to convertibility of currency among the Western nations. The Commonwealth ministers agreed. While other countries watched and waited, Britain prospered under a Tory government and convertibility seemed to be coming steadily closer. Just three months ago, there appeared to be only a few hurdles left, and Britain seemed in shape to take them in stride. But last week, as the top fiscal officials of 57 countries of the free world (with one Communist interloper: Czechoslovakia) gathered in Washington for the annual meeting of the World Bank and International Monetary Fund, Rab Butler backtracked. The time for convertibility, he said, was not yet.

The hurdles were too high, he explained in effect, and unless Britain rested between each jump, she was in danger of breaking a leg on any one of them. In a private talk with Secretary of the Treasury George Humphrey, Butler explained one of the biggest hurdles: politics. Recent polls had shown a startling increase in Labor popularity. If an election were held today, Labor would probably win. Though the Labor leadership have not committed themselves, vocal Labor irregulars like ex-Secretary of War John Strachey have been loudly insisting that a Labor government would re-impose currency controls "in a matter of days." If the Tory government made sterling convertible, speculators would rush to change their money into dollars before Labor won an election and blocked them. Britain dared not risk that, Butler argued.

Watches, Bicycles & Cloth. But there were other obstacles equally imposing. Many a British businessman, for example, has never been completely comfortable with the idea of giving up the "protection" of a controlled currency. Lancashire mill owners shrink at the thought of cheap Japanese cloth on British counters: British automakers shudder at the prospect of all those gleaming U.S. monsters invading their safe home market. Said one business man: "Things are going along fine right now, and as long as there is all this uncertainty, why rush into changed situations?"

Another problem rests not with Britons, but the U.S. Butler has insisted that the U.S. must lower its tariff barriers before convertibility can be made safe for Britain. If trade were freed and the pound made fully convertible, officials estimate that British buyers would snap up nearly $1 billion more of U.S. goods. The British economy could not stand the strain unless, in return, exports to the U.S. and Canada expanded by a comparable amount.

In a message to the World Bankers President Eisenhower spoke up for "the gradual and selective revision of [U.S.] tariffs." But the British were more impressed by the fact that the Randall Commission's tariff-slicing recommendations have not been enacted, that the tariff was raised on Swiss watches, and that the U.S. Tariff Commission has just started hearings on the plea of U.S. bicycle makers for a higher tariff and an import quota on foreign-made bicycles. (British bicycle sales in the U.S. have increased from 67,000 in 1950 to 400,000 in 1953.)

West Germany, Belgium and Holland were all impatient to see convertibility in operation but unable to go ahead without Britain, whose pound sterling finances 40% of world trade. The Netherlands' Marius Wilhelm Holtrop, chairman of the IMF's board of governors, even warned that there might not be another chance to establish a "sound and honest" system of world currency.

But Holtrop's sense of urgency was not fully shared. "Probably the greatest contribution which the U.S. can make to expanding and profitable international trade is a healthy and growing economy at a higher level of activity here in the U.S.," said the U.S.'s Humphrey. Britain "intends to maintain the momentum of our ideas and of our advance," explained Rab Butler, but the time is not ripe for "decisive and irreversible steps" toward convertibility. "Now we all look for a more marked progress in the U.S. toward more liberal trade policies which would increase the dollar-earning opportunities of the rest of the world."

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