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May 1971
is the world's leading banker nation.
And the investors and depositors are
scriously wondering how long the bank
will remain solvent.
In a recent speech Gaylord A. Free–
roan, Jr., chairman of the First National
Bank of Chicago and a member of
the President's Commission on Inter–
national Trade and Iovestment Policy,
reduced America's fiscal dilemma to that
cncountered in a "friendly" poker
game. He was speaking before the
24th Annual Conference of Bank
Correspondents:
"Our
country's position is a little like
mine would be if I invited four or five
of you in to play poker and got out the
cigar box full of chips and sold you each
$10 worth.
If
1 lost hand after hand for
perhaps 20 hands and continually
reached into the box to replenish my
own pile of chips, you might begin to
wonder whether 1 would have the cash
to redeem all of the chips piling up on
the table....
"As you know, our country has (with
only two exceptions) had a balance-of–
payments deficit in every year since
1950. That is, we have lost 18 hands in
the Big Game between nations and have
just continued to issue more dollars. At
first we were not greatly distressed....
The
PLAIN TRUTH
As the deficit continued, the problem
became aggravated. We will have
another balance-of-paymeots delicit this
year - and again will finance it by
issuing more dollar claims - more
chips.
"Since we can't redeem all of those
foreign-held dollar claims, wc have
since early in the 1960's asked Germany
and our other forcigo friends not to ask
for gold for their dollars but to wait a
while. They have waited and waited
and waited. Meanwhile, our position
has deteriorated every year.
"Our time is running out."
Self-Defense Against Common
Threat
It
is little wonder that the Europeans
have decided to "take the plunge" and
strive against all odds for monetary
union. There is nothing more con–
ducive to international cooperation, eveo
among such competitors as Germany
and France, than a commonly shared
outside threat. The threat, in this case,
is the inflation-ridden dollar.
Singly, each country of the Common
Market has little defense against the
fiood of dollars. Any one of "The Six''
that raises the value of its own curreocy
in rclation to the dollar risks raising the
"Beetles" invade America - German Volkswagens being unloaded at
los Angeles, California, harbor. America's surplus of exports over imports
has shrunken to near zero. Additional U. S. expenditures for overseas invest–
ment, foreign aid, military spending, other items, result in annual massive
dollar drain.
11
price of its goods in relation to its other
five partner.s.
This in turn leads to higher interest
cates, speculative currency inflows from
the other member countries - in gen–
eral, overall monetary imbalance and
uncertainty within the entire Common
Market.
The new ten-year, three-stage cur–
rency plan is designed to eliminate this
fiscal insecurity.
For the initial three-year period
ending in 1973 the EEC nations agreed
to narrow their interest cates and more
dosely co-ordinate economic policies.
The Six will
jointly set
guidelines
on
intlivid11al
member nations' growth
cates. This will prevent the spread of
infiation from one nation to the others.
Also, the individual central banks will
set up "hot-line" telephones to permit
instant communication about trends in
the exchange markets.
The secood stage, which runs from
1973 to the end of 1975, provides the
opportunity for the Common Market
Council of Ministers to decide how to
move toward even doser union, with a
centralized banking system and a system
of integrated currencies.
The final stage is set for 1980 when
completion of a central banking system
and a single currency - whether it be
Euro-Mark, Euro-Franc or whatever–
is expected to come into force.
This is the timetable as it stands right
now. But the schedule could be pushed