Sterling's world role under pressure

THE measures taken by the Labour government to resolve the problems of British capitalism have so far had little effect. That is the message of the latest trade figures for January.

Exports have failed to revive, the import surcharge has not had the desired effect on checking imports sufficiently to close the trade gap and the 7 per cent Bank Rate has failed to pull back to London the funds which poured out during the autumn.

The balance of payments crisis thus asserts itself with growing force, restricting every action of a gavernment unable to move outside the limits set by the City of London and the big foreign banks.

It now seems certain that the April budget will bring measures to cut demand in the home market, reduce earnings and raise profits. Notions of a 4 per cent rate of growth, or the maintenance of full employment will have to go overboard.

The goal of maintaining the world position of sterling, which the Labour government has accepted at the behest of the City financiers, in fact makes more difficult for British industry to adapt itself to hold its place in world markets.

As a writer in the current *Times Literary Supplement' puts it: "The time for the breathing space that a devaluation might have given has now passed and there seems no alternative to fairly steady stagnation and decline.' De Gaulle chooses the moment of British capitalism's deepest crisis since 1931 to chime in with a call for a return to the gold standard. The Bank of France has continued to change dollar reserves for gold.

This French attack on the present world monetary system has met with a solid wall of opposition in Britain and the United States. But why has the challenge been made at this time, and what does it signify? gold standard Before 1914 the City of London dominated world finance and trade, despite the growth of powerful industrial rivals to British capitalism. The pound sterling was convertible into gold at a fixed rate and all the major currencies were linked with gold.

The gold standard, at this time, was really a sterling standard, since the pound was by far the principal currency used in international financial transactions. London was the great creditor, and its financial institutions waxed rich.

Under the gold standard each country had to adhere to 'the rules of the game'. If it lost gold, owing to a balance of payments deficit, it had to raise interest rates and reduce the supply of credit to business through the operations of the central bank.

This encouraged its exports, discouraged imports and brought about movements of funds which tended to re-establish equilibrium. This was brought about through the market, not by state intervention. In fact, under the full gold standard, internal economic policy was not controlled by the government at all.

That was not so bad as long as capitalism was expanding on a world scale.

After 1914, however, the system became subject to shocks and crises which made it impossible to restore the gold standard in its pre-1914 form. Sterling had lost its former position; the dollar emerged as a serious rival and New York became the main source of new loans.

Monetary stability was temporarily restored on the basis of the gold exchange standard. The main currencies were still valued in terms of gold, which remained the ultimate means of settling international payments, but each national currency was now managed by its central bank.

It was now possible, therefore, for internal policy, to a certain extent, to be disengaged from the foreign payments position.

In short, the internal note issue was no longer linked to gold; - by TOM KEMP — the gold reserves in the central bank were used to underpin the external value of the currency only.

Under this system sterling and the dollar assumed the role of 'key currencies', used alternatively with gold.

Countries without much gold could thus back their national monetary unit with sterling or dollar balances.

The International The idea was to ensure the predominance of the dollar and the pound while restoring some measure of stability to the world's currencies.

At the same time, it was seen that owing to the war and the great disparity between the economic strength of the USA, and the lack of gold or foreign exchange on the part of most other countries, something would have to be done to inject some new purchasing power into the capitalist world market.

This was the origin of the International Monetary Fund (IMF) and the World Bank.

The IMF re-established and underwrote the gold exchange standard. The gold value of the dollar remained as it had been before the war; other currencies were aligned with the dollar and thus with gold. Only limited changes in these exchange rates were permitted without prior consultation with the Fund.

At the same time, the Fund, and the Bank, could pump a certain amount of fresh purchasing power into those countries which had exhausted their credit and had balance of payments difficulties.

In the immediate post-war years the dollar assumed a dominating role in world economic relations based on the fact that only the USA could supply the commodities and purchasing power required by countries whose economies had been disrupted by the war.

A large proportion of the world's gold stock was drained away to Fort Knox before, during and after the war.

The U.S., to support world capitalism, made loans and, when it was clear that her creditors could not borrow any more with any prospects of being able to repay, made gifts such as Marshall Aid.

This was the ransom paid to stave off the revolutionary threat in Europe and elsewhere.

Changes in the 1950s In the 1950s, however, things began to change. Britain recovered a large part of her world financial position through the role of sterling, with the approval of the U.S.

The industries of Germany, France and other continental countries were rebuilt and modernised with the direct help of, or under the umbrella of, big dollar inflows.

Dollars had also to be found to finance the Korean War, the U.S. puppet regimesFormosa, South Korea, South Vietnamand to extend 'aid' to various underdeveloped countries to prevent them from becoming lost to world capitalism.

Massive spending overseas was also called for to supply the huge military and naval forces extended out across the world: a further price which had to be paid to prevent revolution.

Finally, faced with the pressure on profit rates at home and growing competition abroad, U.S. business set out to buy a bigger stake in industry in the other capitalist countries.

The resulting outflow of dollars has shown itself in what in the early 1950s would have seemed impossible: a U.S. balance of payments problem. In the last decade the Fort Knox gold stocks have declined by 40 per cent.

At the same time, European industries have grown considerably in output and efficiency. Countries like Germany and France now have strong balances of payments.

Moreover, they have greatly improved their position relative to Great Britain, with whom the United States government continues to retain a special association.

It is still concerned, for example, to bolster up sterling as a key currency. All the more, in fact, as other countries now have more dollars than they need-and might seek to change them for gold.

If there was a flight from sterling into dollars, not only would sections of foreign trade be paralysed, but the next step would be a demand for gold for dollars.

All this takes places with gold still at its pre-1949 dollar price. The gold producers (South Africa, in particular) and the holders of large gold stocks other than the USA tended to favour a revaluation of gold.

In the meantime, however, as part of the gold exchange standard, dollars and gold have become virtually interchangeable and the actual output of dollars is decided by the U.S. government.

Some countries usé dollarbacking to inflate their own currency circulations. At the same time, the dollars paid out to keep up U.S. military establishments, or to buy up Europpean industries, also seem to contain an inflationary element.

In short, these dollars are overvalued because their gold price is maintained by the IMF, i.e., an institution under American influence, if not control.

'What has happened as a result of this seems to be that the dollar stranglehold on the pound has increased because of the continued balance of payments crisis in Britain.

On the other hand, the countries of the European Common Market, whose economic strength has been growing relatively both to Britain and to the U.S., no longer accept a position in which their currencies have to take second place to the dollar and even the pound.

The main protagonists of the return to gold so far have been General de Gaulle and his advisors, especially M. Jacques Rueff.

This can be see, firstly, as an attack on the International Monetary Fund which is the basis for the present overvaluation, in terms of gold, of the dollar. As long as the dollar has this premium, according to Rueff,- the international purchasing power of other countries will be limited and it may not be possible to (Cont. p. 4, col. 6)

summer, and now the bus workers, become capital offences under a fascist dictatorship. And there is a great similarity between the retreats of German social democracy before Hitler and the anti-working class and racialist measures introduced by the Labour government over the last three months.

In each case, where the Labour government retreats before the Tories, where it supports the bankers against the old age pensioners, the violence of the police against the youth, it prepares not only another 1931 but a 1933.

The Young Socialists know that the biggest blow struck against the racialists in Southall was by the immigrant and British workers at the Woolff rubber factory in defence of their trade union rights.

Override racialism

Their strike, successful after two weeks in the face of bitter opposition from union officials and Stalinists as well as the racialists, was worth a hundred speeches or laws against race hatred.

This victory proved that in struggles against the employers, class consciousness can override racial feelings, however deeply ingrained.

After Leyton, more and more adult members of the Labour Party and trade unions, who, out of class solidarity, were willing to 'give Wilson a chance' against the Tories, will see that the only way to hit back at the Tories and their racialist allies is to fight for socialist policies and leadership inside the Labour Party.

In this fight, they will receive tremendous inspiration from the example of the Young Socialists, who, in their campaign to backdate the old age pensions, have given new vigour to older layers of workers who for many years have become reconciled to the right-wing dictating terms in the Labour Party.

Given this leadership, the working class can be united against its enemies both within the movement and outside it, and so prevent the disaster suffered by the German workers in 1933.