I. Introductory Note

International Monetary Fund. External Relations Dept.
Published Date:
September 1961
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During 1960 and through the first quarter of 1961 diverse trends marked the world economic scene. In North America, the pace of economic activity slackened and unemployment became a problem, while in most European countries boom conditions and labor shortages continued to prevail. Total world trade rose significantly, particularly because of sustained European demand. With some exceptions, prices of basic products fell during the period. The U.S. balance of payments continued in deficit throughout 1960, while reserves rose generally in Europe and Japan and also in a few countries producing primary products. However, the majority of the primary producing countries continued to experience a shortage of reserves, and in some the reduction in reserves was rapid and large. Several industrial countries had difficulty in devising monetary policies which would meet internal and external requirements simultaneously, and there were significant shifts of short-term capital between important money markets. To some degree, these flows were augmented by speculation concerning exchange rates.

In this economic environment, developments in exchange markets became of focal interest to the Fund. The cumulative effect during recent years of relaxing surrender requirements and restrictions on payments has been very largely to restore to exchange markets their traditional function of reflecting the trend of international financial pressures. Without the insulation of a wall of restrictions, countries’ internal and external positions react more quickly on each other, and this reaction shows itself first in the exchange markets.

Thus, during the past year, the difficulties which several countries faced in coordinating their internal and external monetary policies accentuated the international movements of short-term funds which had become increasingly important in preceding years. In particular, the Federal Republic of Germany and Switzerland received large amounts of foreign funds. Massive purchases of deutsche mark and Swiss francs continued in spite of several measures taken by the German and Swiss authorities to stimulate capital exports and discourage capital imports. Early in March 1961 the deutsche mark was appreciated by 5 per cent, and this was followed by a similar appreciation of the Netherlands guilder. Other countries declared that they had no intention of altering their exchange rates but, even so, movements of funds set in, and they have only slowly subsided. In this connection, various central bank governors, meeting at the Bank for International Settlements, issued a statement on March 12, 1961 concerning their discussions of the situation which followed the currency adjustments in the Federal Republic of Germany and the Netherlands. They were satisfied that the rumors concerning possible further currency adjustments had no foundation, and they stated that the central banks concerned were cooperating closely in the exchange markets. From the standpoint of restrictions, the key development in 1960-61 was the successful defense of the system of convertibility.

Some countries continued to reduce their restrictions, particularly in the direction of simplifying exchange systems and liberalizing imports. These moves made a contribution toward sustaining the volume of world trade. In addition, despite a slight weakening in the general level of raw material prices, the increase of 10 per cent in world trade—and of 6 per cent in the exports of primary producers—was also an important factor in assisting countries to avoid recourse to restrictions. The number of countries which had to resort to increased restrictions was small, and the increases that did occur were, in general, associated with a continuation of internal inflation and a weakening of export markets. Other countries facing difficulties were able to avoid intensification of restrictions by employing firm internal monetary and fiscal measures. The general currency convertibility exercised by those countries whose currencies are widely used in international trade has further facilitated the continuing movement toward freer trade and payments, including the removal of discrimination.

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