Abolish Exchange Control

July 25, 1955

Since the new Conservative victory at the polls, there is once more serious discussion of Britain’s abandonment of exchange control. If the government is to act, it should act now, when its victory is fresh and its prestige high, and when Labor cannot threaten to restore controls.

Recent discussion of British abandonment of exchange control has been much more realistic than the previous perfunctory discussion. It now envisages return of the pound first of all to a free or “floating” rate. Unless Britain contemplates returning immediately to a gold standard (which seems outside the realm of realistic discussion), a transitional free market for the paper pound is the only feasible method of ending exchange control. If it is ended in Britain, it will collapse in most of the rest of the world. An enormous step will have been taken back toward that interconvertibility of currencies and freedom of international trade that the world’s politicians have so long professed to want—and done almost everything to prevent.

For the last ten years many of us have been hoping for some clarity, courage, and common sense on this subject in Great Britain, only to be repeatedly disheartened by the confusion or acquiescence of most British discussion on the subject. But at last the tide seems to have turned. I recently received from England a booklet of 62 pages, The Free Convertibility of Sterling, by George Winder (Batchworth Press; London), which is the most lucid, thorough, and uncompromising protest against continuation of British exchange control that I have yet read.

Winder has published something more effective than a mere polemic. He has written a sort of elementary textbook. It begins by explaining exactly what foreign exchange is, how exchange rates are arrived at, and how foreign payments are made. It leads by that means into an explanation of how great the injustice and folly of exchange control really is. He emphasizes especially two aspects: (1) It involves price-fixing in currencies; (2) it involves arbitrary confiscation of the overseas earnings of a country’s own citizens.

It is only by rare accident, as Winder points out, that the arbitrary price put on controlled paper currencies can correspond with the relative real values of currencies as they would be reflected in free markets. Therefore, “where currencies are sold at controlled rates, one of the parties to every transaction will inevitably receive less than he is entitled to. Someone, in fact, is robbed.” The so-called “dollar shortage” was brought about simply by the underpricing of dollars. This underpricing of dollars (or overpricing of sterling) also had the effect of encouraging British imports and discouraging British exports. “Sir Stafford [Cripps], over a long period, was paying our exporters 5 shillings for their dollars when in fact they were worth 7 shillings. All the time he was robbing our exporters he was pleading . . . that Great Britain must ‘Export or Die’.”

Perhaps worse than this economic damage is the immorality of exchange control—its complete disregard of the individual’s right to dispose freely of his own overseas earnings. “To be effective, currency laws must not only provide that people leaving a country be carefully searched, but that all overseas mail be censored. . . . All foreign currencies . . . owned by Englishmen must be surrendered to the government. There is here far more than control; there is quite literally confiscation. . . . Of course, compensation is paid but invariably it is insufficient. If this were not so there would be no need for punishment to enforce the surrender of currencies.”

A crowning irony, I may add, is that under our own foreign-aid program we have not only been subsidizing exchange control in Europe, but we have actually insisted that as a condition of receiving our aid the recipients must discriminate against American (i.e., dollar) imports! But it does not follow that because we have been injured by England’s exchange control, England has benefited. It has retarded the expansion of its essential export markets.