Devaluation

All day Sunday the BBC repeated a solemn announcement that "the Right Honorable Sir Stafford Cripps, Chancellor of the Exchequer," would have something important to say at 9:15 that evening. When the hour came, Sir Stafford, in clipped, clear accents, spoke into a microphone at No. 10 Downing Street: "Good evening. I don't think I need tell you that I've just got back from the United States, where I have spent the last fortnight with the Foreign Secretary trying to work out, with our Canadian and American friends, some solution to a very serious problem . . ."

After a down-to-the-hearthside preamble explaining Britain's economic plight, Sir Stafford came to the sensational core of his message: Britain was devaluing the pound from $4.03 to $2.80. Even to those experts who were dead sure that devaluation was coming, the size of the cut (31%) was breathtaking.

Cheaper Cars. With glacial firmness, Cripps had been saying for months that there would be no devaluation. Such statements were intended to bolster the world's waning confidence in sterling, but they failed of their purpose. Foreign buyers were holding up orders in hope of buying British goods more cheaply after devaluation.

In his fireside chat, Cripps explained how the move would help exports. For example, a British car that formerly sold in the U.S. for $1,500 could now sell around $900; therefore more Americans might buy.

The "internal value" of the pound would be untouched--it would buy just as much as before of products made at home, or of imports from sterling areas. Imports from dollar areas would cost more--most importantly, wheat from North America. Since the British government could afford no added food subsidies, consumers would pay the difference. Within a fortnight the price of bread would go up from 4-c- pence to sixpence. Experts predicted that the British cost of living would rise 5% in a few months.

Cripps said that the sacrifices involved in devaluation would be wasted if production costs were allowed to rise. By this he meant that appeals for wage increases must be rejected. The alternative would be "unemployment . . . bankruptcy . . . fear and misery." Nevertheless, wage-freezing in the face of rising living costs was the bitterest part of his message for home consumption.

Dearer Ovaltine. The British move touched off convulsive reflex actions around the fiscal world. (To cushion the shock, British banks and exchanges were closed for one day; other countries declared similar holidays.) All the dominions devalued their currencies in proportion; Canada, a dollar country, devalued its dollar 10%. In the colonies the readjustment was automatic. Ireland, Egypt and Israel brought their pounds into parity with Britain's. Norway, Denmark, Finland, Iceland, The Netherlands and Sweden made devaluation moves.

In India, plain people learned the practical meaning of devaluation when a well-known dollar product, Ovaltine, shot up from 3 1/2rupees to 5 in the bazaars.

To the French, who had not been consulted in advance, the British move seemed a unilateral slap at "European unity." Since the French had already devalued several times, they now cut the franc loose to find its own dollar value on a free market, expected it to steady at about 350 to the dollar; but they would peg the franc again if it went beyond that.

Despite Cripps's inveighings against "profiteering," Britons who had bought South African gold shares, in anticipation of devaluation, made whopping profits. Two thousand traders, shut out of the Stock Exchange, gathered outside the building on Throgmorton Street. For an hour the crowd was quiet. Then one trader made a bid--and the boom was on. Brokers, jobbers and clerks shouted orders. Clothes were torn and hats battered.

Freer Trade? All the dislocation and hullabaloo would be amply balanced if devaluation accomplished its immediate purpose: a breathing spell for Britain. Beyond that lay an even more important goal: freeing trade from phony exchange rates. The $4.03 pound was phony because a pound would not buy in Britain as much as $4.03 would buy in the U.S.

The $2.80 pound might work no miracles; but at least it was honest. If honesty was still the best policy, Cripps had moved his country toward recovery--even though it might have to travel through more austerity to get there.

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