Evening star. [volume] (Washington, D.C.) 1854-1972, 1956-12-12
Booking Britoin's Pound

The international Monetary Fund
has acted promptly and with good judg-
ment in authorizing Britain to draw up
to $1.3 billion within the next IL months
for protection Of its currency reserves.
Extension of the credit, for which Britain
will pay both a service charge and inter-
est, is one of several moves taken or con-
templated by the London government as
a means of weathering the economic
threat arising out of the Middle East
crisis. Underlying these actions is the
expressed determination of the govern
ment to maintain the present value of the
pound sterling, in itself an important
factor in the stability of world commerce
sterling finances half of the worlds
trade and paymentS-as well as in that
OF the British economy.
The first British move was to ask the
United States for waiver of S82 million
In interest due to our Government this
month on the 1945 Anglo-U United States
Financial Agreement. Payment of $50
million in principal is required, but pro-
vision exists in the agreement for waiver
of interest under certain circumstances.
u,
has indicated the question will be passed
along to Congress for determination. A
similar waiver, involving $23 million in
interest, has been asked of Canada. A
further step, which Chancellor of Ex-
chequer Macmillan has said he is per
fectly prepared" to take, is to pledge
nearly 81 billion in British owned Ameri-
can securities as collateral for dollar loans
from the Export-Import Bank. Mean
while, on the home front, the London
government has indicated it will not re-
sort to import controls, but will make
every effort to step up the volume and
efficiency of its industrial production as
means of improving its trade balance.
There was suggestion, too, that there
may be some domestic tax increases next
year.
The principal impact of the Middle
East crisis on the British financial posi-
ton Stemmed mostly from political and
psychological factors. When Egypt ma
tionalized the Suez Canal Company last
summer, the threat to BEitain'S oil sup
plies and the country's economy prompted
holders of sterling around the world to
sell pounds. This flight from sterling"
was aggravated when BritiSh-American
differences arose over the invasion Of
Egypt. To maintain the pound value, the
British treasury has been spending gold
and dollars to redeem its own currency.
In November alone the reserves dropped
by $279 million, and in the past four
months the net reduction has totalled
S616 million. The reserves now stand at
just below the $2-billion mark, considered
the minimum for safe operation. OF
lesser effect, but still important, is the
increased dollar cost for American re-
placement oil, Cost of the military adj
venture itself did not involve significant
dollar expenditures, but was estimated at
about IS million pounds sterling
Ironically, the British crisis has oc-
CURED at a time when the government
was beginning to bring imitation under
control at home and its foreign trading
account has been roughly in balance. The
expectation that the export-import posi-
ton can be kept in balance for the next
six months-by which time it is hoped
that Middle East oil will be back in full
supply-offerS the principal basis for hope
that present steps will carry Britain
through. If so, devaluation may be
avoided and another crisis averted. The
alternative could be a financial emer-
gency far more costly than the steps
needed to avoid it.