Toward Currency Change

International money men seem convinced that the next tinkering with the world's wobbly monetary system will involve a general realignment of most major currency values. One tip-off came last week from Karl Schiller, West Germany's increasingly influential Economic Minister. In a TV interview, Schiller substantially hedged Kurt Kiesinger's month-old promise that "the mark will never be revalued while I am Chancellor." That promise, said Socialist Schiller, binds the German government only until next September's national elections. More important, he added, it applies only to an isolated German move to raise the price of the Deutsche Mark and does not rule out a general shuffle of parities among several countries.

Later in the week, probably worrying that his remarks might start a new flurry of currency speculation, Schiller tempered them a bit. He said that "there is no question of revaluing or devaluing right now," but that there might be a general realignment of Western currency parities in 1970 or 1971. Many continental financiers figure that values may have to change long before that--perhaps by next spring--unless the economic austerity programs in France and Britain sharply reduce the pressures on the franc and pound. Last week both currencies rallied a bit in international trading. The pound gained after Britain reported that rising exports had lessened its chronic trade deficit during November. The franc rose even though France announced a $200 million November trade deficit, triple that of October. The money was stronger because, for the moment, most Frenchmen seemed to be accepting De Gaulle's stringent curbs. But the real test will begin early next year, when unions are expected to demand pay increases.

Measured in Gold. If and when an overall currency revision comes, the German mark, now the world's strongest currency, might well be raised in value by 5% or possibly 10%. Other strong currencies--the Italian lira, Dutch guilder and Swiss franc--could be raised somewhat less. The pound and the French franc might be devalued by 5% or so. Other currencies would move up or down, or hold their existing parity against the dollar, according to their relative strength.

At today's exchange rate of four marks to the U.S. dollar, top German officials consider that the dollar is more overvalued than the mark is undervalued. Still, the mechanics of the monetary system weigh strongly against any devaluation of the dollar. The price of the dollar is measured only against that of gold: $35 per ounce. Other currencies are valued in terms of dollars.

These exchange rates can be altered without disrupting the dollar-gold relationship, which underpins the whole system. Moreover, the dollar remains strong in world money markets despite U.S. price inflation.

Rigged Subsidies. To forestall speculation, any currency changes would be negotiated in extreme secrecy. Many experts argue that a reshuffling of parities should precede efforts to introduce more flexible exchange rates. Under today's International Monetary Fund rules, member nations must prevent their currencies from going more than 1% above or below official parity. Allowing fluctuations of 4% or 5% would theoretically help to eliminate recurrent monetary crises. But such a reform would take quite a bit of time to negotiate, and the talks themselves might heighten speculation.

Another problem is the Common Market's agricultural subsidies, which are rigged to keep farm prices uniform in all six member countries. Because the subsidies are computed in dollars, a shift in exchange rates would automatically raise or lower the income of farmers in EEC countries. If the Germans increased the value of the mark by 5%, for example, German farmers would lose at least $250 million a year because the prices of their products would have to be cut by 5%. The subsidy deals are scheduled for renegotiation by 1970. That timetable could be changed but, whatever the schedule, it would be politically risky for any German government to accept substantial shifts in the monetary apparatus until the subsidy system is altered.

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