Money: A Move Toward Disarmament

JOHN CONNALLY had talked so tough in recent weeks that the world's other Finance Ministers wondered if he would ever stop threatening and start negotiating. Last week he finally tempered his tone and began bargaining. At the long-awaited meeting in Washington of the 118-country International Monetary Fund, Connally dropped a hint that the U.S. was willing to give a little to gain a lot. That hint probably did more to advance the cause of real monetary reform than all the confused discussions that had been going on since President Nixon's famous Aug. 15 speech.

Until last week, Connally had indicated that the U.S. intended to turn its chronic balance of payments deficit into a surplus--and was prepared to use its economic weapons, notably the 10% surtax on imports, for as long as it took to accomplish the goal. But at the IMF meeting, Connally dropped the requirement that the U.S. must be in the black before it would scrap the surtax. Instead, he said at a press conference, what was needed was "assurances that a formula and procedure is agreed on that will rectify" the U.S. imbalance. The U.S. will chuck the surcharge, he promised, provided that other governments 1) "make tangible progress toward dismantling specific barriers to trade," and 2) "allow market realities freely to determine exchange rates for their currencies for a transitional period." Texan Connally is fast learning the wooden, oblique language of international moneymen.

Connally has thus far refused to say precisely what bars must be lowered before the U.S. will drop the surtax, for the gamesmanlike reason that he wants other nations to make the first offer. Clearly, any progress in eliminating these barriers depends on how reasonably both sides define "tangible" concessions. Although far more conciliatory than before, Connally still sought leverage wherever he could find it. According to a Canadian version, he approached Finance Minister Edgar Benson at one point and drawled: "The Europeans and Japanese are ganging up on us, and we North Americans have to stick together --you, the Mexes and us."

Dirty Float. Connally invited the other nations to let impersonal market forces do what many governments have found politically impossible: revalue their currencies upward against the dollar to the full extent deemed necessary by the U.S. Major IMF members are moving toward agreement on new exchange rates. Yet because their goods might thus become permanently more expensive in the U.S. and other markets, few nations have allowed the full change to occur. Even after many world currencies were floated against the dollar in August, governments instructed central banks to buy the dollar with their own currencies if their value rose above certain limits. In the jargon of international finance, such maneuvers constitute a "dirty float." What Connally did was to ask the governments to allow international traders, investors and tourists to perform--for the time being, at least--a "clean" one.

The U.S. proposal found very little immediate support. West German Finance Minister Karl Schiller retorted that "you can't demand a pure float of all countries." IMF Director Pierre-Paul Schweitzer doubted whether such an arrangement could achieve the proper "magnitude of realignment," and Japanese Finance Minister Mikio Mizuta was almost certain to recommend that Tokyo resist the move. Even so, by offering to let the nonpolitical money markets arbitrate the key U.S. demand for revaluation, Connally gave the appearance of fairness. That, in turn, was designed to persuade other nations that a full revaluation of their currencies against the dollar is inevitable.

What seems inevitable to many Europeans, for their part, is a U.S. decision to devalue the dollar slightly by raising the price of gold. Connally was careful not to rule out such a move. In fact, he said, since the U.S. has already halted the convertibility of dollars into gold, a 5% or 10% increase in its price--the range being discussed --is "of no economic significance." Connally added: "Gold makes great jewelry." The Administration may well be able to use gold as a cheap but polit ically powerful bargaining chip for ob taining more strategic concessions.

Mini-Devaluations. Speaker after speaker at the IMF meeting called for the building of a monetary system based on neither gold nor dollars, but on some variation of Special Drawing Rights, the IMF's man-made asset. Ma jor nations agreed that the new rules should provide for wider margins on cur rency trades, thus allowing for "mini-de valuations" or upward revaluations that do not invite huge amounts of cur rency speculation. These moves had not seemed remotely possible until the "Nix on shock" exploded in August.

Both the U.S. and its trading part ners believe that the deadline for new trade and exchange agreements is Jan. 1. Neither the dictates of commerce nor of the U.S. political cam paign will allow further delay. Considering the political and economic conflicts that must be resolved, an enormous job lies ahead. Still, as Connally circulated confidently through the meetings, cocktail parties and buffet din ners of last week's conference, he had the air of a man who was hungry to be at it.

This file is automatically generated by a robot program, so reader's discretion is required.