Georgetown forum; World money outlook

The world money out a lot but topic for the eleven hundred and seventy consecutive broadcast of the Georgetown University radio forum. Another in a series of educational and informative programs from Washington D.C. The Georgetown forum was founded in 1946. This is Wallace Manning speaking to you by transcription from the Raymond Rice studio on the campus of Georgetown University historic Jesuit seat of learning in the nation's capital. Today's discussion will be the world money outlook participating are Mr. Pierre-Paul Schweitzer managing director of the International Monetary Fund. Mr. Charles say surround me. Foreign affairs editor for the Kiplinger publications. And Mr. L.A. Jennings chairman of the board and chief executive officer of the Riggs National Bank in Washington DC. The United States and other leading nations are racing to strengthen the world's monetary system before repeated crises of confidence shatter the long prosperity the free world

has enjoyed. The currencies of England and France are constantly regarded with suspicion by speculators. The US dollar itself is enjoying a new confidence after years of doubt. But amid warnings that this could be very temporary governments and private investors continue to hoard more and more gold believing it to be the only sure asset in case paper money suddenly loses much of its worth. This accentuates the apparent shortage of gold in the world and its prices rising steadily. Within months it's hoped there will be a new way to relieve the shortage. The International Monetary Fund will be authorized to probably by this fall to start issuing special drawing rights commonly called s d rs to its member governments. The SD Rs are supposed to be accepted everywhere to be as good as gold. In fact they are often nicknamed paper

go. Our panel today discusses what ast ERs are why they were devised and how they will affect the world money outlook and we're going to begin with Mr. Spicer and asking why we're special drawing rights arrest ers devised which means in shell shocked and spacious dwelling IEDs devised to help to deviate it internationally could it be headed by various countries. Countries as you knew heads to second colonists among some sage can say have a band so famous deficit of a balance of payments surplus and say need Betances like the Haitians the nodal to base it that's when you. And that is the purpose of health biases of various central banks. So far say consist mainly of crude

end of reserve currencies usually United States Dollars which are held by the only odd central banks and which are used to settle day to day transactions. Recently said has been said says the reserves would not increase regularly enough to provide our counties with adequate reserves to face their potential deficits grew or it is no longer increasing. Depends on the output of South African mines. It depends on. It's a time end in herding the amount of industrial uses it's not reliable as something which increases steadily according to need. So in flew out flew off United States dollars. Depends on the US balance of payments when you have too big a deficit. There are too many dollars which flew out and

the value of c is as said gets questioned when you are in a clearly but there is no increase in that as you would to an outflow of dollars and there might be a worldwide shortage of As Safir one reach the conclusion that one food should find means of creating deliberately and rationally additional reserves when needed and this is the purpose of so-called s the ALSA special power guides. Mistress around him is to Schweitzer you mentioned the need for an asset whose value is not questioned and the SDR as it seems to me are historical new attempt because they are neither exactly money nor exactly credit. Am I right in believing that there are unquestionable value depends on the fact that all the nations that are party to this agree

that they will accept these exactly as though they were gold and that in fact the SDR is is based on a certain unit of gold for its value is that right. Trying to establish whether whether that were not simply creating something entirely out of the air but are basing it on on some reason for confidence. And you have a perfect defied. A far reaching innovation and it was felt hundreds of beginnings that sale value should be unquestioned and you disputed. So you have a good value. Guarantee and who is which defined very strictly. So hide it to use it and geisha to accept it in on this sale acceptability is fully established in our mind. May I ask if the special drawing rights are being substituted for something else that some exist of snow or are they something entirely new.

Nice place very strongly that special drawing IDEs are not a substitute to Gould and Douglas I think said gold will remain the basis of the international money system. Additionally and practically as the US of course the something new which would supplement. Crude oil is held by other countries not be a substitute for them. So it should be created when when it reaches a conclusion its AC needs to increase reserves. Not if one felt that one should have something better than what one presently has now for a participating country what practical effect would it have. How would they be. How would their drawing rights be determined a lot of the international money they found of which items are managing director is a little

bit like a couple Haitian. We have shareholders and so who will do their share ends of proportionate importance to us. One example has about 22 percent of the tutor's share if I may call it the money to defend the country like the United Kingdom 10 percent and a small county has over point 15 percent. Special Drawing ites means they come into existence. We advocate it in the mounds decided in advance to each member of the money to pay for and the call being a passionate plea to its share and so will be credited in Abo books also amount and OK to do that and so you can put them into sale and afterwards use them according to their needs.

I'd like to ask Mr. Jennings a question. I know from being in touch with the reading public through our Kepler publications that a good many people of a conservative turn of mind feel a little uneasy about the idea of creating new retiree's always the thought that that government in the past have have done this and have abused the privilege the fact that this is an international rather night and a national thing doesn't seem that much different to them and so they think of it as simply something leading to inflation and subsequent Rohan. And since since bankers also are known for their conservatism I'd like to hear what Mr. Jennings thinks that his fraternity the banking community feels about this new development. Well as a banker I am intensely interested in the Antara problem. We cannot permit a breakdown in our trade settlement arrangements with other countries. If gold isn't adequate to make the Solomons why then of

course on a sound basis such as the special drawing rights appears to be why we are interested that it come into being that it be implemented. But on a sound basis we have had over a period of 10 or 15 years deficits in our balance of payment settlements. Some of them rather substantial. Last year I think we had a small surplus of possibly a billion dollars but the year before that I think the balance of payments deficit was three and a half billion dollars. And there's been a whole series of years wherein the deficits have been large and. If there should be a breakdown in the interests International Settlements mechanism it would have a drastic effect on foreign trade.

Our country's economy is very importantly concerned that foreign trade be maintained at a high level. Seoul we are concerned we are greatly interested and we hope that this method may augment the time honored system of making trade settlements in gold and gold as Mr. Sweitzer as pointed out is not being produced in sufficiently large quantities really to provide the necessary wherewithal to make these settlements. Mr. Serrano we're hearing that that that the present lack of a crisis on the international monetary scene is just the lawless that's begun to to seem in the last few years or so. We live in a period of just fluctuating crises on this. So assuming that that even during this very year of 69 we're going to be hearing of further problems

caused by speculation against the fry and called the pound or perhaps toward the German mark because of rumors that it could be revalued. Is this apt in any way to interfere with the timetable which I understand calls for the ratification of this new plan by about the middle of the year and then they are putting to work of the new new cars in the fall. Well we of course have had some major Kaisers in the last year and a half and so is the last one was in November last year. They get by as a weakness officer finds Frank I do not think it daughter said one should expect to have other Kaisers like that one cannot of course predict that I won't be one. But there is no good reason why there should be another one because a lot of progress has been made now mainly the UK pound sterling and cus

Starlost seemed now to be in better shape than say where family and friends are certainly making progress in trying to restore their domestic and international equilibrium. There is a great improvement in what we call dressed men or assess by which countries try to put their house in order and buys the same token to achieve equilibrium in their bands of payments. But this would be much more difficult if say our way are not in command in the international reserves. Our country is one place and you could compare say existing amount of reserves to a cake of a given size and everybody fights to get a bigger share of the cake. So you can gain only at say expense of somebody else. Your special drawing rights come into being. There will be a regular increase in the size of the cake so everybody

can try to improve its reserve situation goes out necessarily doing it at the expense of somebody else and I think that will be a great improvement for which we are working now. Mr. Jennings spoke a few moments ago. I would like to ask a question of Mr. Sweitzer. It seems to me that. One of our big problems and it's a problem in other countries is the want of inflation and it seems to me that it's highly important that inflation be how old in all of these countries that we're dealing with to a very modest level preferably of course absolutely even with no inflation at all. But my question is that dead as the future of the SRS as the special drawing rights their soundness depend at least in part and maybe a heavy part

on the economies of the various countries being how in line inflation wise. Here's a quote. There's no doubt it is in many countries a large inflation presently which is reach dangerous proportions. But this is mainly a domestic problem and we're into a case of the United States because the dollar is so widely used and hated it was a becomes an international problem. It's a purpose of suspicion of drawing IEDs to be issued in such amounts as to avoid economic stagnation and deflation. And at the same time to avoid excess demand and inflation therefore it's the issuance of special drawing eye it is surrounded by very important safeguards. For example played a quiz it

sees a special drawing rights come into. That kitty is Sitz if should the flow be the better equilibrium into balance of payments of the major company and the likelihood of a better adjustment of balances of payments in the future. On that same subject I'd like to play on your analogy with the cake for a moment. Actually when you when you put the drawing rights into a fact you're not creating more cake. You're creating more rights to have a piece of cake aren't you. What I'm thinking is this. And connection also with the with the inflation problem. I can foresee the possibility within five or ten years that the the under developed countries would have dispersed most of they I would have used most of their drawing rights in order to purchase cake in the form of equipment industrial

goods and so on real tangible merchandise from the developed countries. Therefore the developed countries would would be holding. Read more reserves in the form of Rights and the underdeveloped ones would would be the doubters still and I was wondering from that that's not necessarily a bad thing that's the way in which the world gets developed. But I was wondering if this doesn't indicate that the IMF itself will have to gradually exercise more authority even than I thought it already has over the financial policies of each country that that is in the plan but as a cake I was talking about was a cake constituted by international official who readings of cooler then. Yeah but I wasn't criticizing the right of anybody. Yeah of course the issuance of special throwing IEDs would increase the means at the disposal of companies to purchase goods and services from mature countries. So men will be at the

beginning was nuts that developing countries would use them and wisely. All I had to display unknowns are the paging system but mostly that the United States and United Kingdom with tried to use him to finance their seats and that I think was the main worry when the hood system was set up. But obviously the purpose of suspicion is going on its look to help companies finance the visits and on having they visit it is to meet the needs of the plating and financial system as to who ordered it. It's fairly important I suppose to understand that there are really two separate monetary problems in the world that they're they are linked as everything to do with money is but the run that the special drawing rights are intended to help and eventually to cure is this shortage of poker chips to keep a bigger game going. But the this

imbalance between certain currencies is as a separate one isn't it that today is the fact that price rises are greater in one country than another and so that the currencies are not really in line with their fixed exchange rates this can only be cured ultimately by the nation either adjusting its own economy or by an actual change in exchange rates right. I couldn't agree more with you. So I would like to see good honest Sweitzer when he believes a special drawing rights will come into operation our own country for a long time had a favorable balance of trade running in the area of 5 billion dollars. That figure has been substantially reduced. Possibly that would indicate that there is not as much urgency at the present time from the standpoint of the foreign countries because they are not having quite as much

strain through having large trade surplus sharp losses coming into the United States which tends to let's say increase their deficit so therefore is the initiation in the use of FDR just as urgent now as it may have been a year or two ago. I would think it is at least this agent because first in order to come into effect they have to be ratified say have been proved unanimously by our member current place. Now each country has to good to its constitutional process in order to ratify them. Back when I defied an international treaty and they will come into effect only when say have been ratified by 60 percent of our members who are doing 80 percent of subverting I hopes this will be achieved some time next month and then comes a problem once one has this facility at

one's disposal when one will activate the mess we say women will actually start issuing these new. I said That will depend on the collective judgment of our members on a proposal which in my capacity as managing director of the International Monetary Fund. I am supposed to make. I have to be satisfied. Headache was it. Safeguards are made for better equilibrium in the balance of Feynman's likelihood of a better adjustment poses. Instead set is an action need to supplement reserves if I am satisfied with that I will have to make a proposal after having had wide consultations with all our members on the timing and amount of issuance of these

new special drawing rights. I think even now as there is need which is at least as urgent as it was when one started this exercise you would use a new system of a two tier good market. No additional gold is presently flowing in or is even the way you have on your balance of payments deficits. If you look at it. Which flew out to do no longer increased reserves of central banks in dollars of central bank in dollars. They've even declined I sings the last quarter by nearly a billion and a half dollars last year one lost three billion dollars in good form international reserves. So I think it provided all of the safeguards taken care of. Likelihood said we when we need to create says new as it

is as great as ever. Jennings Mr. Mr. Schweitzer said a little while ago that he didn't see that any good reason for a crisis as serious as the one we passed through in November and they were all currency markets I was wondering as a commercial banker who is foreign department deals on these things. Do you have the feeling that the Frank or the pound or market problems may become very serious and the course of this year I want to ask you whether whether you're actually hedging any of them I would be indiscreet. What do you think about the future. I do not see a crises developing in 1969. This is a very difficult area to make predictions on. But no we do not see a crisis is coming

here or this current year. Mr. Jennings I'd like to ask you we're going to interrupt your moment to comment upon the relationship if there is one between a direct one or an indirect one between our domestic economic situation I with particular reference to high primary interest rates higher primary interest rates and so on and the international economics while I strongly believe that we cannot continue in this country to have. Large federal deficit we have had so many of them I think through June thirty nine thousand sixty eight for that fiscal year we had a deficit of about 25 billion and that's why my next I believe successive years deficits in our federal budget and to my mind the strong

sound fiscal policy combined with help for monetary policy are imperative in maintaining maintaining a sound position economic position currency position and soundness of the dollar so to me those all of the areas I mentioned are of outstanding importance and if followed in my opinion would create a background where the special drawing rights could be issued on a much sounder basis. You have to have a sound basis on which to issue SDI ours. Therefore you have to have a sound economy and you have to control inflation and inflation in my opinion most difficult to control through monetary measures alone it is necessary that the fiscal policies being followed by the federal government be. Hopefully for a few years on Star Plus basis but certainly not a

continuation of the large deficit so you would not then. Personally it would not be your judgment that the SD is a special drawing rights should be instituted as early as this fall. Oh I would be wholly in favor of seeing the SD R's come into being at an early date. There isn't any question in my mind that there is a need to supplement or augment the time honored method of settling trade debts international trade debts through the use of gold. So all of the sooner the better so far as I'm concerned my main concern being that the economies of the various countries be sound and that would help. In my judgment and measurably in permitting a sound issuance of the SDR we have this this other problem which the SDR will not solve and that is the imbalance between certain currencies and that's a lot of controversy now about whether we should have more flexible exchange rates are gradually changing exchange rates.

Do you have a position on that Mr. Spicer that it's prudent for me to ask a 15 second but how I can say is that any kind of system cannot possibly be a substitute for sound domestic policies. I may seek and seize the moment I would lose. Thank you gentlemen very much for your discussion of the world money outlook our thanks to Mr. Pierre Paul Schweitzer managing director of the International Monetary Fund to Mr. Charles Acer Army foreign affairs editor for the Kiplinger publications. And to Mr. L. A. Jennings chairman of the board and chief executive officer of the Riggs National Bank of Washington D.C. you have attended the weekly discussion program in the Georgetown University radio forum broadcaster which was transcribed in the Raymond Rice studio on the campus of historic Georgetown University in Washington D.C. next week you will hear discussed Latin America the new left

our panel at that time will consist of Dr. Louis C. Aguilar associate professor of history at Georgetown University and Dr. Brady Tyson associate professor of Latin American Studies at the American University. We welcome your suggestions and comments. Please address them to the station to which you are listening to this program has been presented in the interest of public education by Georgetown University. Your moderator. WALLACE fanning this program was distributed by the national educational radio network.