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Published online by Cambridge University Press: 26 March 2020
If there were no external payments problem, the British Government could safely encourage a considerably faster rate of domestic economic expansion than in fact seems likely during 1961. It could do so without straining the productive capacity of the economy and without causing any more rapid increase in prices than is likely to occur in any case. Yet, because of the desire to reduce the risks to the international position of sterling, it is probable that the Government will once again consider it impossible to encourage economic growth.
The most important policy questions for 1961 are to ask what action the Government can take to solve two fundamental and closely related problems. One is that of the underlying disequilibrium in the British payments position; the other is that of the difficulties caused both to Britain and to the United States by the present system for settling international payments, involving the international use of the national currencies of these two countries.
(1) If the authorities supported the security sterling rate, the consequence might be a loss of reserves or the need to sell some of the official holdings of American securities. If no oflicial attempt were made to support security sterling, the appear ance of an appreciable discount might lead to new evasions of the exchange control regulations, similar to the Kuwait Gap of the years up to 1957; it is questionable whether the exchange control system could now easily withstand heavy pressure of this type.
(1) Those who argue that our payments troubles are the result of a premature relaxation of controls tend to forget that Britain was one of the last countries to abandon dollar discrimination; further, Britain has benefited greatly from the relaxation of many of the import controls of overseas countries.
(2) The United States Secretary to the Treasury, has indicated his desire to modify the comparable United States legislation, because of the burden it puts on the United States balance of payments.
(1) R. Triffin, Gold and the Dollar Crisis, Yale University Press, 1960.