A Scent of Change

The world's big powers have been battling quietly for months over how to improve the mechanisms for bankrolling international trade and investment. Their aim: to foster world prosperity, which could be damaged unless the amount of money available to finance world trade keeps pace with trade's growth. Last week, Washington's money managers sniffed a scent of victory for some of their ideas about accomplishing that aim through world monetary reform.

Betting on the Price. A mixture of good and bad news provided the ground for their hope. A sharp rise in gold hoarding abroad has sent shivers through Europe's finance ministries. The free world's official stores of gold--in national treasuries and in the hands of such international bodies as the Inter national Monetary Fund, the Bank for International Settlements and the Euro pean Payments Union--fell by $40 million during the first nine months of 1965. That was the first such drop in ten years. The IMF figures that the missing gold has flowed into the hands of rich speculators in industrial countries, particularly France and secrecy-loving Switzerland. This amounts to a bet that the world price of gold will rise, and it puts pressure on Europeans as well as the U.S. Treasury. Reason: both would lose if a crisis ended with devaluation of the dollar.

On top of that, the IMF reported last week that international monetary reserves shrank during the first three quarters of last year from $68.9 billion to $68.88 billion while global exports rose 5%. In the long run, the expansion of prosperity-giving world trade requires growth, not shrinkage of those reserves, which are composed of gold, dollars, British pounds, and drawing rights at the IMF.

Points of Progress. European countries have been dragging their feet about monetary reform, partly because they contend that the U.S. and Britain must first bring their balance of payments in order. Last week brought word of progress from both nations. President John son reported that the U.S. balance-of-payments deficit fell from $2.8 billion in 1964 to no more than $1.3 billion last year. Britain revealed that belt tightening had cut its trade deficit almost in half, to $772 million last year.

All these developments, Washington feels, will impel the rich nations in the so-called Group of Ten to hasten their efforts toward an agreement on a new international currency to supplement dollars, pounds and gold in world trade, as the U.S. has been urging. The problem, of course, is old, and even in the relatively uncomplicated days of 1720, English Satirist Jonathan Swift recognized it in a memorable quatrain:

Money, the lifeblood of the nation, Corrupts and stagnates in the veins,

Unless a proper circulation

Its motion and its heat maintains.

Swift's insight still applies--246 years later--as few statesmen understand bet ter than the Group of Ten, a blue-ribbon panel of finance ministers and central-bank governors from Belgium, Britain, Canada, France, Germany, Italy, Japan, The Netherlands, Sweden and the U.S. The group will shortly meet again in Paris, with its sights set on reaching a compromise agreement by March.

Expansive French. Even the French, whose intransigence has been a leading obstacle to monetary reform, seem less likely to give trouble this year. With the country expected to pursue a more expansionist domestic economic policy now that doctrinaire former Premier Michel Debre has replaced Valery Giscard d'Estaing as Charles de Gaulle's Economics and Finance Minister, the French will presumably run a smaller trade surplus. If so, France will have fewer dollars to trade for U.S. gold--and should be more inclined to reach an accommodation with the rest of the West on the world's finances.

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