Crisis All the Time

For the 200 moneymen assembled last week in Basel, Switzerland, the 38th annual meeting of the Bank for International Settlements was the occasion for a somber review of the past year's dizzying dislocations in world finance. Last fall the pound was devalued. Four months later came the speculative attack on the dollar that resulted in abandonment of the London gold pool. More recently, France's upheaval put unexpected pressures on the franc. "You can't tell the difference between monetary crisis and noncrisis any more," concluded one official at Basel. "Now it's crisis all the time."

With three key national currencies in varying degrees of difficulty, some fancy financial footwork has been necessary. To fortify the franc, France earlier this month was forced to draw $745 million from the International Monetary Fund, the country's first such loan since 1958. The next day Britain followed suit by tapping the IMF for credits totaling $1.4 billion.

One danger in administering such medicine is that the IMF, as the doctor in charge, might become a bit ill itself. In financing the French and British drawings, the IMF had to sell off $582 million worth of its own gold reserves. Although the organization's total reserves still remain fixed at $21.1 billion, a growing share of that is held in dollars, pounds and francs--the very currencies that creditor countries have been shunning. It thus would have made little sense for the IMF to try to defend the franc by making its loan to Paris largely in dollars or sterling. Instead, it put together a potpourri of currencies ranging from Danish kroner and Irish pounds to South African rands and Mexican pesos.

Without a Panacea. To relieve the growing strain on the IMF, the Group of Ten, meeting last week in The Hague, agreed to provide that organization with $770 million. Meanwhile, the world money markets continued to show encouraging signs of greater stability, Although the price of gold jumped to a record high in Paris--where the government controls on the export of francs were causing Frenchmen to turn to bullion--free-market trading elsewhere remained relatively calm.

As for the longer-range threat to world monetary liquidity, the IMF's 107 member nations were in the process of ratifying, one by one, creation of a new kind of international money, called special drawing rights, to supplement dollars, pounds and gold. S.D.R.s, bookkeeping entries designed to expand the reserves of individual countries, should help bankroll world trade. But, warns Bank for International Settlements President Jelle Zijlstra of The Netherlands, they "are not a panacea for the difficulties that must be dealt with."

Chief among those difficulties are the balance of payments deficits plaguing key trading nations. As a result of France's crisis, a Common Market study indicated last week, Paris is likely to run payments deficits of some $1 billion through next year. Even so, France has reserves of about $5.6 billion, presumably enough to ride out a deficit for some time; moreover, at week's end, it further bolstered the franc with a request for an additional $140 million drawing from the IMF. Britain is headed for an expected deficit of at least $500 million in 1968, but expects to show a substantial surplus in 1969. It is now trying to arrange a longer-term loan to go along with the three-year credit it received from the IMF. Such a loan, which will probably be financed by a group of individual countries, is necessary to stem the continuing flight from sterling that, if allowed to go unchecked, could increase pressure for yet another devaluation of the pound.

Getting Serious. The U.S., of course, has its own chronic payments problem, and it has long been painfully obvious that the Johnson Administration's proposed 10% tax surcharge was the best way to combat it. Fast approaching adjournment for the summer, Congress is likely to pass the surcharge within the next two weeks--17 months after the President first urgently proposed it. The tax should show the rest of the world that the U.S. really is serious about cleaning up its financial household. And that in itself should increase confidence in the dollar.

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