A Problem of Orchestration

Although there are still miles to go, the free world last week moved measuredly closer to modernizing its overworked and undercapitalized monetary system. After five years of jockeying, financial negotiators for the first time agreed unanimously to work toward creating something to supplement gold, dollars and British pounds in bankrolling international trade and investment.

The accord emerged in Washington from a threeday, closed-door meeting of the 20 executive directors of the 105-nation International Monetary Fund and deputies of the "Group of Ten" industrial powers.* While U.S. negotiators expressed some doubts and reservations, IMF Managing Director Pierre-Paul Schweitzer called the decision "great progress" toward expanding world monetary reserves. "We have an orchestra now," he said, "although not everyone is playing the same notes."

Appeasement in Munich. Indeed, France and the U.S., the chief protagonists in the long battle, are scarcely playing in the same key. The U.S. has been pressing for quick creation of a new international currency--"paper gold"--as the best way to finance expanding world trade and keep free-world economies prosperous. In the past two years, there has been no growth of world money reserves needed for those functions. Last year, for the first time in modern history, the store of gold in the free world's central banks actually dwindled (by $100 million), as private hoarders bought huge quantities of the metal. Dollars, the second major source of world monetary reserves since World War II, provided no offsetting lift because France turned in its own dollars for gold faster than other nations added dollars to their reserves. World trade, on the other hand, swelled by 81% in 1965 and 91% in 1966. If continued, those trends mean that international trade will bog down in time for lack of gold and money.

The French argue that the international money plan would be a mere device to help Britain and the U.S. dodge the consequences of their persistent balance-of-payments deficits. Two weeks ago at Munich, to the consternation of U.S. officials, the French swung the other Common Market Finance Ministers to the restrictive Gaullist recipe for monetary reform: larger credit facilities through the IMF. To achieve that, France merely dropped its two-year opposition to devising any contingency plans at all and its generally unpopular demand to study whether the price of gold should be raised. Comparing the Six's action to Britain's ill-fated prewar efforts to placate Adolf Hitler, Britain's weekly The Economist fumed: "Munich has once before been a synonym for the unsuccessful appeasement of unreason. It may have become so again."

The Grittiest Questions. British and U.S. monetary experts, backed by those of many other countries, call the French plan too timid to solve the world's need for some $2.5 billion a year in new funds. Still, the delegates in Washington drew hope from the fact that France at last had ceased delaying negotiations. Last week's agreement left the grittiest questions unsolved, including when, what kind of and how much in new IMF monetary reserves should be issued. Above all, an impasse remains between the Common Market's French-inspired stand that the new reserves should have the trappings of repayable credit and U.S. insistence that they should be more like transferable currency. Despite such obstacles, IMF Chief Schweitzer insisted that there was still time to devise "the broad outlines of a plan" of world money reform for approval at IMF's September meeting in Rio de Janeiro.

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

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