Helping the Pound

At one point last week, the value of the pound sterling dropped to $2.7866, lowest since July's crisis, when devaluation seemed inevitable. Also last week, the ailing pound required another dose of credit. Yet despite such news, prospects for the pound were actually beginning to look up.

For one thing, Douglas Jay, president of Britain's Board of Trade, reported that the nation's trade gap--the difference between high imports and low exports--was down from $295 million in July to $193 million in August, for the best showing since February. Part of the improvement could be attributed to the resumed shipment of exports after Britain's 45-day seamen's strike. But Jay, a 59-year-old economist, thought there was more to the story than that. He felt that the drastic measures recently imposed by Prime Minister Harold Wilson to hold down consumption and wages were beginning to take effect. "Deductions drawn from the figures for recent months were too gloomy," said Jay, ungloomily.

"Swap Facilities." Even more significant for the future of the pound was last week's increase in credits available to Britain. The move was arranged through what are called "swap facilities," a system under which countries pledge to support each other's currencies by exchanging funds in case of trouble. Four years ago, Britain and the U.S. negotiated such a swap; later the U.S. and seven European nations, plus Canada, Japan and the Bank for International Settlements, negotiated another swap to stabilize the currencies of the nations involved.

Under this exchange, the New York Federal Reserve Bank extended to Britain a line of credit that stood at $750 million this summer, before the pound withstood its most severe assault from speculators (the idea is that Britain would do the same for the U.S. if the dollar were to run into trouble). Of the total, the Bank of England had to call for $300 million. Meanwhile, other central banks had provided Britain with another $ 1 billion.

Cashed for Gold. Last week the U.S. upped its credit ante to Britain by $600 million. The new arrangement would permit the British, using dollars, to repay what they have drawn from Continental banks. Thus it also raised the possibility that some of those dollars would be cashed in for gold. The U.S. Treasury last week noted that France, with gold purchases of $221 million, was the only nation to convert dollars into gold "significantly" during the second quarter of 1966. To allow the U.S. to continue as savior of the pound and at the same time to protect the U.S. from gold losses, the Europe-Canada-Japan group upped its pledge to the U.S. from $2 billion to $3 billion.

How much of Britain's new swap rights will have to be used depends, of course, on the performance of the pound over the next few months. But the mere fact that those rights were expanded indicates a basic belief that the British government at long last means business about righting the country's economy.

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