MONEY: Changing the Rules

One month after the latest international monetary crisis, Cabinet officers, legislators and bankers on both sides of the Atlantic are intensely debating a lengthening list of ideas for changing the global financial system. The discussion will heat up this week, first at a meeting in Basel of central bankers from the world's ten leading industrial nations, then at a gathering in Luxembourg of European Common Market ministers. All participants recognize that the makeshift measures that allayed the most recent crisis are not enough. Unless more fundamental changes are begun, there will be a new upheaval —sooner rather than later.

The monetary system can move either toward greater rigidity, with spreading controls on the movement of capital, or toward greater flexibility, with more frequent shifts in the exchange rates of big-time currencies. Proposals are being made in both directions. Many of the discussions are as secret as sin, to prevent speculators from gaining fortunes after sniffing out future changes. As University of San Francisco Economist Frederick Breier says: "In the old days, two subjects were taboo: sex and exchange rates. The first taboo has been lifted, but the second should not be." Still, many details of the proposals have filtered out. A rundown on some of them, from most rigid to most flexible:

THE EUROCRATS' PLAN. The Commission of the European Common Market is plugging for its six member nations to put up barricades against foreign speculative money by adopting capital controls. A new report by the Commission, so far available only in French, proposes that foreigners should be charged for the privilege of depositing money in Common Market banks, instead of collecting interest on those deposits. The Commission also suggests a double standard for exchange rates, such as Belgium recently adopted, and West Germany is now considering for its superstrong mark. There would be one rate for "current" transactions (mostly export-import deals and tourist spending); another rate, presumably less favorable to foreigners, would cover loans, investments and other transactions. This would be financial isolationism with a vengeance, and the double-exchange-rate system sounds like an administrative monstrosity.

THE WIDER BAND. The mildest proposal put forward by advocates of flexibility is to scrap the International Monetary Fund requirement that nations must prevent the price of their currencies from varying more than 1% above or below their official dollar values. Germany and The Netherlands are already letting the mark and guilder float—that is, find their own values based on supply and demand. Robert Roosa, former U.S. Treasury Under Secretary, proposes that IMF members let their currencies fluctuate perhaps 2½% above or below official value. Thus, small changes in the values of currencies could be made by the free market, and nations would not be forced into so many traumatic political decisions on formal devaluation or upward revaluation. Money speculation would also be riskier than it is now, because a speculator could lose up to 5% of the funds that he shifted into a currency that he thought would rise in price.