Where the News Ends:
CHAMBERLIN, WILLIAM HENRY
WHERE the NEWS ENDS By William Henry Chamberlin Keeping the Dollar Stable There IS A touch of irony in the fact that the American dollar, a major instrument of Europe's industrial and...
...The dollar has replaced the British pound as the reserve currency of the entire free world...
...The situation is serious and calls for action...
...And while there is no cause for the introduction of exchange controls or for a relapse into self-defeating protectionism, the gold outflow will not be much affected by such mild measures as cutting the duty-free allowance for returning American tourists or requesting servicemen overseas to cut their spending by $80 per annum...
...There would not even be a temporary competitive advantage for U.S...
...Our present difficulties are political in origin rather than economic...
...As against $16 billion in dollar liabilities, we have $40 billion in foreign investments...
...Our favorable showing in merchandise trade is overbalanced by foreign aid expenditures, by the maintenance, at a high and expensive level, of our armed forces and their dependents in many parts of the world and by the outflow of American dollars for investment...
...It is gratifying, therefore, that President Kennedy has announced his intention to avoid any such devaluation, and to keep unchanged the present price of $35 for an ounce of gold...
...Perhaps these were justified during Europe's first poverty-stricken years after the War, but they make no economic sense during today's eastward outflow of gold...
...This experience shows that tides can shift in the international balance of payments...
...exports in such a move, because European countries (with the possible partial exception of Germany and Switzerland) would immediately match the American devaluation...
...Our tariffs on European automobiles are lower "than those of European countries against Detroit's products...
...It is also worth remembering that in the years immediately after the War many foreign economists, especially in Great Britain, were convinced there was a permanent "dollar gap" in American-European commercial relations...
...The only beneficiaries of a cheapened dollar would be speculative gold hoarders and such gold-producing countries as the Soviet Union and South Africa...
...That dollar gap has been reversed—with consequences that are temporarily disconcerting to the United States...
...Ways and means must be found of reducing costs in foreign aid and in the maintenance of our overseas military establishment...
...It would be a staggering blow to international confidence and stability, and an unworthy return to foreign central banks which keep large parts of their reserves in dollars, if the dollar were devalued...
...There also must be realistic negotiation to remove barriers to American exports...
...Given cool heads and reasonable judgment in public and private finance on both sides of the Atlantic, there are good prospects of achieving this goal...
...While this last hurdle in the way of a free flow of trade was being eliminated, the United States was running a balance of payments deficit of about $15 billion, losing $5 billion in gold and $10 billion in the form of dollar liabilities, mostly held in Europe, which could be presented for payment in gold...
...In 1960, they ran up a favorable balance of about $4.5 billion in merchandise trade transactions with the outside world...
...But no such end is in sight...
...capital, caused by the higher interest rates which prevail in Europe and to some extent by fear of a dollar devaluation...
...United States industries are eminently competitive...
...The situation also has been aggravated by noncommercial movement of U.S...
...It was only two years ago, in fact, that the principal currencies of Europe became interchangeable as a result of the huge economic salvage operation which the United States undertook for the benefit of shattered Europe after World War II...
...The underlying American position in world production and trade remains immensely strong...
...It would indeed be a sorry end to America's big foreign economic salvage operation if its own currency were subjected to serious international deterioration...
...And we could sell much more agricultural produce abroad if it were not for discriminatory quotas and other barriers against our farm exports...
...We should intensively promote foreign travel in this country, too, and sweep out some bureaucratic stupidity and bad manners in the process...
...Europe has almost as much of a stake as the United States in keeping the dollar a stable convertible currency...
...Europe, they said, could never hope to earn enough dollars to pay America for what it needed...
...The situation during recent years, when our international accounts have been in the red to the tune of $3.5-$4 billion a year, has been especially disturbing, and rumors of an impending devaluation of the dollar have been floating about in such financial centers as London, Zurich and Frankfurt...
...WHERE the NEWS ENDS By William Henry Chamberlin Keeping the Dollar Stable There IS A touch of irony in the fact that the American dollar, a major instrument of Europe's industrial and financial recovery, is now in trouble because of the mounting tide of gold flowing from our shores to Europe...
Vol. 44 • February 1961 • No. 9
