The Sterling Crisis T HE average man in this country is
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apt, after the long series of alarms which he has experienced during the past few years, to look upon the critical state of our national finances as being something " cooked up" by politicians and bankers. In fact it is difficult to bring home to him the urgency of the position. He is probably beginning to realize, however, that the measures made or being arranged to cope with the crisis will 'add to his discomfort and probably affect his pocket. He May even believe that they are essential, even if the _basic reasons be little understood The matter was put bluntly to us recently by a well versed Member of Parliament. He said that if immediate measures had not been taken to cope with the position and more did not follow rapidly, the pound sterling might well drop to • half its present valueby .April and the country might become bankrupt by August.
if that happened, we might be in much the same position as was Germany when the mark ' fell until it took a trunk load of notes to buy a meal, and what was formerly equivalent to a penny bus fare rose to £1'0 or more. These might be the results, but what are the causes?
Conclusions of Economic Commission According to a recent economic survey prepared by the Secretariat of the United Nations Economic Commission for Europe, these are two major changes in trade, 'together with an excessive flow of speculative capital. The official British trade forecast at the beginning of 1951 almost came true as regards the volume of exports and the effects of the rise in import and export prices, but the volume of our imports, which rose by some 15 per cent., was ,much greater than had been allowed for in our White Paper, and this was the main reason for the wide gap between the forecast and the results.
The first effect of the increase in export receipts, resulting partly from the inflation of the pound, was a great improvement in our foreign-exchange assets which, however, was offset by the increase of our liabilities to other members of the sterling area. Inevitably the imports of the producing countries also rose, and these gained headway at about the time when the collapse in the market came. The crucial shift in the trade balance of the sterling area resulted only partly because of the fall in export receipts, but rather more to the increase in the import bills.
The Survey states that perhaps more than with any other, the present crisis could have been foreseen and advance preparations made to deal with it. There is little evidence that the authorities in either of the two countries principally concerned, the United Kingdom and the United States, had even begun to adjust their thinking and policies to meet these difficulties. It was not until November, 1951, that the first tightening of the restrictions on imports was imposed, and then only with respect to our purchases from other European countries.
Production and Rearmament Compete The present payments crisis in Britain stems in large part from a conflict between a necessarily moderate rate of increase in production and a relatively ambitious armaments programme: our production' being limited by the availability of metals and other essential supplies.
Of those factors which particularly affected us, one was the large iherease in imports in 1951 required to build up stocks of raw materials and foodstuffs after reductions made in the previous year. The second major cause was the violent rise and fall in international raw-material prices since the start of the Korean war. This led to concurrent rises and falls in the foreign-exchange earnings of primary producers in the sterling area, and thus in the gold and dollar assets held by the United Kingdom as the custodian of the reserves for the whole area.
In our case. movements in primary prices act as a two-edged sword because of our dual role as a major importer of primary goods for our own use and as a financial centre for a great overseas area exporting primary goods to the world. When the prices of raw materials and foodstuffs are relatively high, they tend to worsen our terms of trade and lower our real income but, owing to our currency relationship, the foreign exchange position of the area as a whole benefits. Low prices for primary goods work in the opposite direction, favouring our income, but at the experise of lower foreign-exchange rates from the exports of the sterling countries overseas. During the past two years, primary prices shot upwards, but this was followed by an abrupt reversal.
With these violent changes mostly within the twelve months from the middle of 1950 until the middle of 1951, it is little wonder that a dollar crisis has followed.
On the other hand, gold and dollar reserves could not have been built up rapidly from the post-war period without seeming to negative the objectives and Policies of the European Recovery Programme. American aid was intended to build up production capacity and raise living standards in Europe, and the accumulation gf what might have been considered as "idle reserves" was not encouraged. This policy may have been the major consideration in the suspension of economic assistance to the United Kingdom late in 1950.
As to the future, it is believed that, in the long run, some of the forces that produced the present crisis may bring something in the nature of an automatic adjustment which would ease the payments ppsition of the sterling area. The demand for imports from this may be reduced, with a decline in the prices of important raw materials In the meantime, Britain itself may have to import more for payment in dollars. The grain harvests in Argentina and Australia have been poor. We will probably get less coarse grain from the U.S.S.R., and although the recent agreement with America on steel supplies will help to raise our level of industrial production, this will be at a heavy loss in dollars. Taking all the factors into consideration, the urgent need for offsetting cuts in direct dollar imports is readily understandable. In this matter the speed with which the crisis can be solved depends largely upon that with which agreement can be reached between the members of the sterling area, particularly as to the distribution of these cuts. '
Help the Double-decker
THE anomalous position, by which a singledeck bus, 30 ft. long, is permitted two -axles, whilst a double-decker of the same length must have three, should be ended immediately.
On January 1, the Public Transport Association, the Municipal Transport Association and the Passenger Vehicle Operators' Association submitted to the Minister of Transport a strong case for the removal of this requirement, but only an acknowledgement has been received. There is now everything to be said in favour of the change. Technically, and from the safety aspect, the third axle is out of date and illogical. What is more, in markets abroad and in the Empire, particularly Australia, where the double-decker is favoured, emphasis is laid upon the provision of only two axles. Furthermore, the production cost of the three-axled type is much higher, there is greater complication in design, difficulties with the final drive and brakes, heavier wear on tyres, increased fuel consumption and a higher incidence of punctures.
What is required essentially is a permissible laden weight of 14 tons for all types of publicservice vehicle, and no restriction on axle weight for these. There is no doubt that the increased -seating capacity would make for efficiency and economy in operation, and greater comfort.