ECONOMICS: The Quiet Crisis

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Some international crises get into the headlines and some, no less real, hang quietly and ominously in the air. One of the quiet sort is now building up. Until a few months ago Britain's recovery was one of the most hopeful signs in the world picture. In April, British exports to the U.S. dropped 38% below March, widening the famous "gap" between what Britain has to pay out for dollar imports and what she can sell for dollars.

Unchecked, this trend could set off a series of reactions that would run through the world, canceling out many of the EGA-inspired recovery gains of the last year. Naturally, speculation as to how to check it runs through world capitals. There is renewed and insistent (but muffled) talk of devaluing the British pound as a means of regaining Britain's markets.

Unrealistic. The pound exchange rate is now fixed by Britain at $4.03. This rate has long been unrealistic in several senses. The easiest comparison is with free exchange rates in other countries. The pound now sells legally for $3.15 in New York and for $2.92 on the free market in Paris. These bargain pounds, however, cannot be legally taken into Britain (except for a £5 tourist allowance), and cannot be used in open commercial transactions for British goods. A much better comparison supporting the argument that $4.03 is an unrealistic rate is the fact that $4.03 will buy more of most goods inside the U.S. than £1 will buy in Britain.

In the postwar shortage of goods, the fact is that the overpriced pound was not a disadvantage. Buyers wanted the goods badly enough to buy, no matter what the price tags said. Now, however, world production is catching up with demand. Sellers have to compete because buyers turn away from the high price tags.

The U.S. domestic price level has been falling since last September. That means that a dollar buys more than it did last year. This, in turn, means that a pound buys still less, relative to $4.03, than it did a year ago. In other words, any British price tag, unchanged for a year, is now really higher because the dollars needed to buy the pounds to buy the article are worth more than they were before.

That is why Britain is finding it harder & harder to sell in dollar countries. In a few other countries, e.g., Belgium and Italy, British export trade is running into trouble for the same reasons, but, in general, the pound position as against other "soft" currencies has strengthened rather than weakened. In other words, if the British cut the official rate to, say, $3.50 in order to get in line with the dollar, other countries would devalue their currencies to get in line with the pound.

Most experts agree that this general "revaluation" has to come sometime. The question is when.

A growing body of U.S. opinion answers, "Soon." U.S. Secretary of the Treasury Snyder is about to leave for Europe in a mood to ask European financial authorities why general devaluation, beginning with the pound, should not start.