Money: Looking for Change

The U.S. balance-of-payments deficit is the least-understood major problem facing the nation today. Many of the businessmen most affected by it confess that they do not grasp all its vagaries and nuances. But they are convinced that when a relatively modest $3 billion deficit forces a nation with a $650 billion economy to reduce its role in international finance, then something is wrong with the world's bookkeeping.

Last week a top business spokesman, Arthur K. Watson. 45, chairman of IBM World Trade Corp. and youneer brother of IBM Chief Thomas J. Wat son Jr., gave voice to that belief and made a suggestion for reform. What is needed, Watson told the Detroit Economic Club, is "a system that will give the free world elbow room to grow, without these unending balance-of-payments crises that alternately hound us and Europe." He asked: "Why not create a new kind of currency backed not only by gold but also by the assets of American business abroad?"

Strain & Drain. In theory, such a move could quickly relieve the U.S.'s monetary migraines. The U.S. now has $96.9 billion worth of foreign investments and other assets: that is nearly double the $56 billion of foreign holdings in the U.S. American assets abroad range from giant factories to such enterprises as a mink farm recently opened in Korea, a ski lift run by two young expatriates in Berlin, and the two largest ad agencies in Brazil. World business has become so intertwined that European holdings in the U.S. are about as great as U.S. holdings in Europe. Such well-known companies as Capitol Records, U.S. Borax, Lever Bros, and Shell are European-controlled.

Though many businessmen were intrigued by Watson's idea, bankers and economists from London to Tokyo said that it would hardly be practical. Retorts Watson: 'T was only appealing to bankers to find a way out of this dilemma."

The U.S. has ample assets to pay off its foreign creditors—but the problem is that those assets are in the wrong form. U.S. foreign holdings are mostly factories and other long-term investments, while overall foreign claims against the dollar are concentrated in such quickly convertible assets as stocks and dollars themselves. Foreigners can —and do—easily exchange those assets for U.S. gold.

Last week the U.S.'s gold stocks sank to a 26-year low: $14.8 billion. The Treasury let it be known that not only France and Spain but also Belgium, The Netherlands and Switzerland traded in dollars for gold during the last quarter of 1964. West Germany's leading private banker, Hermann Abs, privately urged his government to exchange some of its dollars for gold (Chancellor Erhard has turned him down so far). And the Common Market issued a scolding report, predicting that its members would drain off more U.S. gold unless the U.S. quickly put its house in order.