Bush revives currency plan
Tuesday 22 September 1992
Concern over last week's currency turmoil prompted Mr Bush to relaunch a US plan in which movements in leading currencies would be measured against movements in prices of a basket of commodities, including gold. Mr Bush, who made the presentation to finance ministers of industrial and developing countries attending the International Monetary Fund annual meetings, said the basket could be used alongside other measures of economic performance, such as growth, inflation and trade imbalances, to strengthen economic policy coordination.
If the basket measure suggests that exchange rates have become misaligned, there could be changes in economic or monetary policies, perhaps backed up by intervention on the currency markets. In principle it would provide an 'objective' measure of exchange rate changes for meetings of the Group of Seven leading industrial states.
The US plan was first unveiled in 1987 when James Baker as Treasury Secretary tried unsuccessfully to establish a semi-fixed exchange rate system for leading currencies. The relaunch this week, to be repeated at the United Nations General Assembly, reflects Mr Baker's new role as White House Chief of Staff.
Some support for for Mr Bush's proposals began to emerge yesterday.
Michel Sapin, the French Finance Minister, and Michel Camdessus, managing director of the International Monetary Fund, both urged a new debate of the global monetary system. Henning Christophersen, Vice-President of the European Community Commission, said the Atlantic dialogue on currency reform should be reinvigorated.
The IMF was accordingly said to be considering bringing forward to early 1993 the date for its semi-annual meetings.
Though the US plan may fail to attract widespread international backing as was the case five years ago, worries about eroding co-operation among the Group of Seven may breathe life into the broader debate over reforms to the world monetary system.
Underlining concern over instability in financial markets, the IMF last week suggested that market liberalisation had not been matched by regulation and the policing of markets by governments.
Separately, Britain urged that debt relief terms for the world's poorest countries should be improved.
In a speech to the World Bank/IMF Development Committee, Robin Leigh-Pemberton said that the current relief offered by industrial countries - including a write-off of two-thirds of a country's debt - was insufficient, especially for those trying to reform their economies.
The Governor of the Bank of England, standing in for Norman Lamont who has returned to London, said: 'Relief needs to be more generous.'
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