The $60 Billion Question

The annual meeting of the International Monetary Fund that convenes in Washington this week will be a kind of money Olympiad. Among the central bankers, finance ministers and star economists who attend such gatherings, there will be competition for national victories, much talk of gold and loud complaints about the rules of the game. The very purpose of the meeting is to start changing the rules in hopes of alleviating the world's serious and endlessly debated money problems. But too many powerful IMF members--including the U.S., West Germany, France and Canada--face imminent national elections to risk committing their campaigning leaders to any new monetary compromise that might entail some loss of national privilege. Even so, IMF members may well lay some groundwork for a much-needed reform.

The reform will likely lead to a lesser role for the dollar in world finance. Because the dollar has been the world's major money for international trade, U.S. tourists and investors, multinational corporations and military chiefs could spend dollars abroad almost without limit, piling up huge payments deficits. When other nations were faced with similar deficits, they had to take stern measures--like raising interest rates or restricting the outflow of capital --that have deflated their economies. Not the U.S.

As a result of undisciplined American spending, the IMF members now face a perplexing $60 billion question. That is the total of dollars held by foreign central banks as a form of claims against the U.S. This money has been moving back and forth from one bank to another helping to incite repeated "dollar crises." Foreign bankers have wanted to convert many of those dollars into U.S. gold, but they have been forbidden to do so ever since President Nixon cut America's tie to gold in August 1971. That act, says Treasury Secretary George Shultz a little smugly, "freed us to follow the domestic policies that we think are the important ones without having to worry so much about international developments." In plainer words, the U.S. has been free to ignore repeated pleas by Europeans that it raise interest rates, a measure that would have lured some of the dollars back home but risked slowing down domestic economic growth.

U.S. policy has in fact gained some success; the dollar has become stronger in world markets. Partly as a result of Nixonomics, the U.S. balance of payments during the year's fourth quarter is expected to be close to surplus. Though there were some bad deficits earlier this year, the improving trend should substantially reduce the deficit from last year's alarming $30.5 billion.

A New Chief? The U.S. at last seems more willing to discuss what its trading partners desire most--an eventual return to some form of convertibility--if other nations make concessions. Washington wants Europe and Japan to reduce trade barriers against America's exports. The U.S. also wants more freedom to make frequent, small changes in the value of the dollar to help American competitiveness in world markets. In fact, there is some support among IMF members for an enforced system in which changes in currency values would occur often and automatically, on the basis of objective measures like rises and declines in each nation's reserve assets. Individual countries, especially the U.S., would have to surrender to an international authority some sovereignty over their own currencies.

In this delicate period of political-economic tradeoffs, the U.S. has concluded that the IMF needs a new chief. Rather brusquely, Shultz told Pierre-Paul Schweitzer, the independent but not always effective Frenchman who has been IMF managing director since 1963, that he should step down rather than stand for a third five-year term in 1973. U.S. officials contend that Schweitzer lacks the necessary leadership. The charge seems particularly odd considering that Schweitzer exercised leadership--and irritated the U.S. in his timing--by proposing last September a plan for revaluation of currencies that strongly resembled the one adopted in December. The leading candidates to be Schweitzer's successor are two central bankers: Holland's Jelle Zijlstra and Italy's Rinaldo Ossola. Besides leadership, the new director will need a large measure of patience. At the very best, real money reform still seems two or three years away.

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