Money: The Crus of the Matter

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The U.S. last week formally stated a plan to cope with a long-troublesome dilemma: the shrinking money supply available for world trade and investment, otherwise known as the liquidity problem. In his economic report (see U.S. BUSINESS), President Johnson declared that "The free world must look to new sources of liquidity—rather than to deficits in the U.S. balance of payments—to support growing international trade and payments."

In their trade with one another, more than 100 free-world nations occasionally settle their accounts by exchanging gold; more often the exchanges are in the U.S. dollars or British pounds that almost every nation assiduously collects because they are internationally accepted as easily transferrable "reserve currencies." It has long been clear that this system is becoming inadequate, because, among other things, it depends heavily on a continued outflow of dollars and pounds—in short, on an unfavorable balance of payments for the U.S. and Britain.

To strengthen their currencies and economies, the U.S. and Britain are both going all out to pare their annual balance of payments deficits; the U.S. deficit has been narrowed to around $1.25 billion, Britain's to $1.26 billion. As one result, other nations are running short of money reserves.

Opposing Proposals. A widely suggested solution to the problem involves the creation of a new, artificial unit of currency. In Paris this week, before a meeting of the Group of Ten (Belgium, Britain, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden, the U.S.), Treasury Under Secretary Frederick L. Deming intends to outline a plan conceived in part by his predecessor, Robert Roosa, who is now a partner of Brown Bros. Harriman. It proposes establishment of the cru—for collective reserve unit—which would supplement reserves of dollars and pounds in international payments. The U.S. idea is that movements of the cru would be handled by the International Monetary Fund, which already oversees national financial situations through the quotas, or drawing accounts, that countries use to cover financial difficulties.

The U.S. cru came as a countersuggestion to another cru scheme put forth by the French. Unhappy that the dollar and pound alone have special status, the French have argued for a return, of a sort, to the gold standard. The French cru would be issued in proportion to each country's supply of gold; settlement of payments between nations would be made partly in gold, partly in crus. Finally, the French want supervision of the cru system to be in the hands of the Group of Ten, which holds most of the world's reserves.

Possible Compromise. The U.S. and French cru proposals are so different that a compromise will have to be worked out. One possible compromise is advanced by Germany's Otmar Emminger, foreign director of the Deutsche Bundesbank, who suggests a cru that would originate with the Group of Ten but be supervised on a day-to-day basis by the IMF. It would not, as the French demand, be so closely pegged to gold. On balance Emminger's idea seemed reasonably close to a cru system that might be satisfactory to all nations.