ECONOMICS: Toward Stability

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(1) LIMITATIONS ON THE POWER TO DEVALUE. A nation's power to devalue its currency has long been a favorite weapon in trade war. Cheaper pounds or francs mean that exports from Britain or France are cheaper, imports more expensive. The British were reluctant to give up the unlimited power to devalue at a time when they must greatly expand their exports to meet old and new debts. (2) FREE CONVERTIBILITY OF CURRENCIES. Britain owes about $16 billion in foreign debts, mostly within the sterling area and therefore payable only in sterling. Britain had expected to have about five years to put free convertibility into effect, which would permit debtors to collect in dollars or other currency as well as in pounds. But U.S. loan negotiators had insisted that, with the $3,750-million line of credit, Britain would have plenty of dollars, and must make all the new and part of the old sterling balances freely convertible within a year. Her debtors (like India and Egypt) could then claim some of the dollars Britain so badly needed for her own reconstruction.

The British Government had finally agreed, in order to get the dollar loan. France, too, by ratifying Bretton Woods and devaluing the franc, showed that she would try to fit her economy into a system of multilateral trade.

Chief Abstainer. Whatever the difficulties or doubts of its members, Bretton Woods was now officially in operation—though it would not be ready to do business for about five months. The failure of Russia (which is not a big world trader) to ratify within the time limit was regretted in Washington and London as an unfortunate sign of noncooperation, but no one thought that it would make much difference. The Fund has little usefulness for a totalitarian economy; its object is to make private trade possible.

The Russians offered an improbable official explanation for their abstention: they wanted more time to study the plan. It was more likely that they had simply decided not to show their hand until the dollars which they hope to get through a U.S. loan are securely in Russian pockets.