Economics: As Good as Gold

The most important gathering of the world’s moneymen is the annual meeting of the directors of the World Bank and the International Monetary Fund. Lately the U.S. has found it necessary at these meetings to promise to keep the dollar as good as gold.

Last week, as the governors of the 104-member nations of the Bank and Fund met in Washington, the U.S. found it easier to keep quiet and let others do the talking. “Personally, I don’t see how any currency can be considered better than the dollar,” said the Fund’s managing director Pierre-Paul Schweitzer. “We see no unloading of the dollar in the private sectors, from private holdings, for conversion into gold. This alone is distinct proof of the soundness of the dollar.”

Renewed Pressure. These kind words were one of the signs that, despite the cost of the war in Viet Nam and a balance of payments deficit, which the U.S. Treasury says is running at an annual rate of $1.3 billion, the dollar is surprisingly strong.

Still, there was renewed pressure on the U.S., especially from Europeans, to completely close its much debated payments gap as a precondition for meaningful progress toward world monetary reform. The so-called Group of Ten industrial nations has been creeping toward some sort of reform that would create a new reserve in case the $69.6 billion in gold, dollars and pounds sterling now available to settle international payments becomes insufficient to back growing world trade.

Classical Process. “We all agree that the deficits of reserve-currency countries should be eliminated in the shortest possible time,” said France’s Finance and Economics Minister Michel Debre. “Any device for the creation of additional reserves would, by definition, immediately provide countries currently in deficit with the means to postpone, against their own best interests, recourse to the classical process of adjustment.” In other words, a new reserve would foil France’s plan to make the U.S.—and others—settle accounts in gold.

No agreement was reached, or expected, on monetary reform, but at least there was some progress on how to go about it. The exclusive Group of Ten, with France dissenting, earlier this year voted to struggle ahead with some sort of monetary reform. Before Christmas, the Ten will meet with the 20 members of the executive board of the International Monetary Fund, which includes representatives of less developed countries, so that the poor as well as the rich can have a say in reform plans. Also there was agreement that some sort of stand-by reserve plan—no one knows quite what—should be drawn up and approved in 1967. France and its former colony Chad were the only ones to oppose the timetable. But finding himself isolated, Debre unenthusiastically agreed to continue to take part in the talks even if he does not agree with the reform ideas.

Gloomy Diagnosis. The other great subject for discussion, aid to underdeveloped countries, got a gloomy diagnosis from the financiers in Washington. The World Bank and its offshoots, the easy-loan International Development Association and the private enterprise-oriented International Finance Corp., have made a grand total of $11 billion in loans in 20 years. The needs are growing and the resources diminishing. The growth rate of the underdeveloped countries has already fallen from 5% a year in the last decade to 4% now. Tight money, high interest rates, inflation and payments deficits make it harder for the rich countries to lend to the poor.

World Bank President George Woods pleaded with the rich to quadruple their contributions to I.D.A. from $250 million to $1 billion annually. “The development effort,” he said, “is faced by a crucial finance gap—the difference between the capital available and the capacity of the developing countries to use increasing amounts of capital effectively and productively.” U.S. Under Secretary of State George Ball, who is on the verge of retirement, replied: “No nation, when it is confronted with a serious balance of payments deficit, can afford to see the funds it transfers work their way through the international monetary circuit and end up in a gold drain—an increase in its payments deficit—and ultimately pressure to adopt restrictive domestic policies. This point is critical to the position of my country.” The U.S., said Ball, will increase its contribution only if others share the burden.