Cut-Rate Currencies

July 2, 1956

This year more than a million Americans will travel abroad, and probably spend about $2 billion doing so. Most of them will take only dollars with them, in the form of travelers’ checks, and buy their foreign currencies in each country as they need them. In this way they will needlessly waste hundreds of millions of dollars. Most foreign currencies can be bought right here before leaving, and at substantial reductions below the “official” parity rate.

The average American traveler either does not know that these bargains can be obtained here, or mistakenly believes that they represent a black-market transaction. He still does not realize the extent to which foreign-currency controls have been relaxed in recent years.

There are limits, of course, to what can legitimately be done. Great Britain, for example, still makes it illegal to bring more than £10 into that country. But France, Germany, Austria, Belgium, Ireland, India, and Italy impose no limit on the amount of their own currency that may be taken in by the traveler. Spain imposes the high limit of 10,000 pesetas.

POSSIBLE SAVINGS

To give an idea of some of the savings that might be effected at recent quotations, French francs at the official rate are 350 to the dollar; they can be bought here (legally) at 390 to the dollar. The official rate for Turkish lire is 2.80 to the dollar; they can be bought here ten for a dollar. At the moment of writing there is a terrific “bargain” in Bolivia’s boliviano. The official parity is 190 to the dollar; it can be bought here for 5,500 to the dollar. The foreign-exchange dealers in New York who specialize in these sales wonder why an American tourist will figure how to save a few dollars on his airplane tickets or luggage, or travel tourist-class rather than better, and then throw away $100 or $1,000 by failing to buy his foreign currencies here before he leaves.

Some banks sell foreign currencies, but such business is done in the main by foreign-currency dealers. Among the larger dealers are Perera Co., Deak & Co., William Holzman & Co., and Lionel Perera, Manfra & Brookes.

The huge discrepancy that has developed between “official” and market rates of foreign currencies is the result of foreign-exchange controls built up during and since the second world war. Foreign-exchange control is a totalitarian device. A government seizes from its own exporters part of the dollars (or other “hard” currencies) they would otherwise have earned, thus discouraging exports from that country. The government then encourages excessive imports into its own country by selling these seized foreign currencies at bargain prices. It thus creates an “unfavorable balance of trade”—and blames its own exporters and its own citizens for this result. Exchange control also enables a government to conceal from its own people the real extent of the depreciation of their currency.

THE REAL SOLUTION

A few weeks ago Dr. Ludwig Erhard, West Germany’s Minister of Economics, once more spoke out against the consequences of this system. He declared that only three currencies in Western Europe—the West German mark, the Belgian franc, and the Swiss franc—are valued correctly in terms of the U.S. dollar. The rest are priced too high and ought to be “readjusted.” As a result of false official valuations the world no longer has a true international price system or free convertibility of currencies.

Although Dr. Erhard did not go this far, the real remedy is not another official “readjustment” of currency values; it is to follow the example of Canada, and let each currency be bought and sold at its daily market value. It would thus become fully convertible. It would then be up to each government to stabilize its currency, not by imposing coercions on its own citizens, but by taking the measures necessary to maintain confidence in its currency both at home and abroad. This would mean an end to deficit financing, to cheap-money policies, and to any further resort to the printing press. This is the first necessary transitional step. Ultimately, of course, there will be no lasting stability of domestic or international currency values until the world returns to the international gold standard.