Anglos v. Continentals

Throughout the free world, finance ministers, bankers and economists are meeting, cogitating and debating the money migraine. The financial experts of the Group of Ten* gathered two weeks ago in Paris to debate ways to modernize the world's overworked, undercapitalized monetary system. In Washington last week, President Johnson's newly named international monetary advisory committee--including former Treasury Secretary Douglas Dillon and Under Secretary Robert Roosa, Bankers David Rockefeller and Andre Meyer--met for the first time to explore ideas. Treasury Secretary Henry Fowler will go to Europe in September and try to persuade Europe's financial leaders to start planning for a future monetary summit.

Deflation Dangers. The prime problem is a money shortage: international trade is growing much faster than the means to finance it (see chart). Because the world has no international money, it depends on a mix of gold and the two internationally recognized "reserve currencies," dollars and British pounds, to support commerce. Most of the recent growth of trade has been bankrolled by dollars flowing out of the U.S. in the form of investing and lending, tourism, foreign and military aid--thereby steadily worsening the U.S. balance of payments. Now Washington's "voluntary" curb on investment abroad has finally, if perhaps temporarily, halted the payments deficit, allowing the U.S. to enjoy a rare surplus.

This means, however, that the rest of the world is running short of dollar reserves. Many Europeans have complained that the U.S. flooded their economies with dollars and bought up too much of their industries; but now that the dollars are being brought back home, they wonder what they can use for a trading currency. British Chancellor of the Exchequer James Callaghan, among others, warns that the present shortage may constrict international trade, upon which much of the world's economic growth depends.

The Dollar's Primacy. While the moneymen agree that the present reserve-currency system is inadequate, they sharply disagree about what to do. The U.S. and Britain are more or less allied on one side, and the Continental nations are on the other. Les Anglos, as Charles de Gaulle calls the Americans and British, are worried about prospects of trade deflation, which could lead to an international recession. Many Continentals are more worried about inflation--that the U.S. may soon again revert to its habit of inundating their economies with dollars over which they have little control.

In any discussion of ways to create new reserves, the U.S. is determined to maintain the dollar's primacy as the world's most freely acceptable money. One plan it favors would be for the major nations to increase their contributions to the 102-nation International Monetary Fund, which then could make bigger loans to finance trade. The attraction of this is that the U.S., being by far the largest contributor, dominates the IMF.

Signs of Flexibility. The Continentals are not united in opposition, but many of their leaders want to upgrade their own currencies and downgrade the dollar and the pound. One idea for accomplishing this is to limit the amount of dollars and pounds that foreign nations could hold in their reserves. To increase the supply of reserves, the Continentals, especially France, would like to create a composite international money, which would be backed by contributions from the industrial nations. The Continentals would have this money administered not by the IMF but the Group of Ten, which they dominate.

Though bargaining will be long and hard, the major protagonists have lately shown some signs of flexibility. Britain, while still basically holding to the U.S. position, seems willing to make monetary changes through the Group of Ten instead of the IMF. France has given up the idea of gutting the dollar and financing commerce with gold (that idea was intolerable to other nations). And the U.S. has recently grown more receptive to supplementing the dollar with some sort of "Esperanto" currency. Nobody expects quick or sweeping agreement, but compromise seems more likely than it did a few months ago.

* The U.S., Britain, France, West Germany, Italy, Japan, Sweden, Canada, Belgium and The Netherlands.

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