Mr. Macdonnell (Muskoka-Ontario):

That is my statement; enacted by radio.

Mr. Abbott:

I am contradicting it.

Mr. Macdonnell (Muskoka-Ontario):

The

minister said it was not really a law at all, that nobody needed to obey it. But unfortunately, as the hon. member for Calgary West pointed out to him, even though it was not a law it was something on which the government authorities were acting, because they had impounded certain goods belonging to a client of the hon. member for Calgary West. So we will leave the minister to decide the question, when a law is not a law.

Now I want to come to what I consider to be the main point for consideration; that is 29087-100

Foreign Exchange Control the basis underlying this act. I quote very briefly from the preamble to the act itself:

. . . whereas it is desirable to provide means for achieving orderly exchange arrangements and in general discharging the obligations of Canada as a member of the international monetary fund . . .

I suggest, Mr. Speaker, that the government has taken that agreement entered into at that time and approved by us, and has just sat down and accepted that and allowed a kind of paralysing rigidity to settle down upon them for these three years. Now, when the results are beginning to appear, when our trade with western Europe is in danger of being strangled, the government is coming along and asking for a continuation of this legislation. Let me point out that in the Bretton Woods agreement itself there was no such contemplation. Article 1, subsection (iv), says the purpose, among other things, is-

To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

I ask where there is any indication that the government have taken that part of the agreement seriously, where there is any suggestion of any kind that they are proceeding to the elimination of foreign exchange restrictions. All we have had is the minister telling us of the great things they have done in the past, making no suggestion that there should be any alteration of any kind. Yet, as I said a moment ago, there is in western Europe a situation which I would call alarming, and in using that word I think I am making an understatement.

Of course the international monetary fund got off to a bad start. It allowed the nations to write their own ticket in regard to the value of their exchanges, and I think they have been to blame for allowing the thing to go on without alteration. We know France and Italy have more or less kicked over the traces, but in the main the situation has been allowed to continue. The officials of the international monetary fund are aware of the danger and difficulty. In a report by the international monetary fund, dated April 30, 1948, this appears at page 21:

The fund agreement makes it clear that the provisions for the regulation of exchange rates are not intended to impose upon the fund the duty of perpetuating in the name of stability exchange rates which have lost touch with economic realities.

I propose to say something more about that because here you have the officials of the international monetary fund stating very emphatically the need for realism; yet there is not a sign that the governments back home who give these representatives their instructions are interesting themselves in this matter at all.

1576 HOUSE OF

Foreign Exchange Control

For a long time, Mr. Speaker, the evils of this situation were obscured. I know quite well, and probably the minister would say it if I did not say it, that for some time business in this country had the feeling that it was good to have exchange rates pegged. It meant the risk was taken out of business. It meant the government took the risk. This was true of the banks as well as of business people who should have known better. They should have realized that this was a dream world in which they were living because its rigidity, which seemed to be working pleasantly for the moment, was going to produce exactly the sort of evils that it has. The minister said not a single word about remedying any of these evils. I ask the minister whether the government is satisfied with the situation in western Europe? Are they prepared to sit by and let this paralysing rigidity continue?

Mr. Abbott:

It cannot be remedied by changing the Canadian exchange rate.

Mr. Macdonnell (Muskoka-Ontario):

Never mind, let me make my speech. As I was saying, the minister made no mention of this in his speech.

Mr. Blackmore:

Will the hon. member permit a question?

Mr. Macdonnell (Muskoka-Ontario):

Yes, certainly.

Mr. Blackmore:

Would the hon. member mind telling the house, in the course of his remarks, whether he regards this rigidity as a cause or an effect?

Mr. Macdonnell (Muskoka-Ontario):

It is

like a lot of other things, both a cause and an effect. I will come to that later. The idea that a fixed exchange rate was going to be a pleasant thing is beginning to change. The situation in western Europe has awakened our people. They know now that the danger is a very serious one. The Minister of Agriculture (Mr. Gardiner) knows it is serious. Last December he said so to the people in London, and I should like to quote two or three sentences from what he said. This appeared in the Montreal Star on December 17, 1948.

Hon. J. G. Gardiner, Canada's agriculture minister, said today that Canada's hopes of long-term, large-scale food agreements with the United Kingdom were "dashed to the ground" by currency difficulties.

The minister continued:

I am convinced that the world is not in any state of mind where it can be expected to agree that the manipulation of any system or systems of currency is going to be allowed to interfere with the will of those who have empty stomachs when it is preventing their purchasing surpluses of food and distributing them.

Later, he said:

There is no plan for exchange of British cars or steel products for Canadian food although Britain gives Russia tinplate for fish.

Although Canadian production was increased largely during the war when Britain was in urgent need, British negotiators now propose imports from Canada similar to those of pre-war days.

It might be a good thing for everybody if they would close down united nations meetings long enough to permit some of the United Kingdom and the United States experts to get together and settle some basis on which dollars and sterling can be converted to allow nations like Canada to produce food to feed the starving millions and distribute it.

The Minister of Agriculture is a practical man; he knows that these difficulties exist.

What is the situation in western Europe? We all know what it is. Our trade is shrinking to the point where it is dubious whether we are going to be able to sell any of our agricultural products. Do not let anyone imagine that even the most miraculous discoveries of oil in Alberta or equally miraculous discoveries of ore in Labrador are going to solve our problem, even if they were so miraculous that they solved the payment problem in the United States. Nevertheless, unless this problem of exporting our food products to Europe is solved, you will have an economic revolution on your hands because you would have the western provinces with three or four times too many people growing food. So far as I know, the Minister of Finance made no reference to that. The Minister of Agriculture knows about it. Why would he not? He is a farmer.

What is the story in Britain? We know the story. In Britain and in western Europe you have this ironical situation. North America is sending them aid in a manner that has never before been equalled by any nation in peacetime in the economic field. What are they doing? How are they using these materials? I am not exactly blaming them, I am blaming the situation; but they are using them in order to make themselves better able to cease trading with us. They are using them so as to be better able to develop trade in the sterling area. I am glad to be able to tell the minister who smiles somewhat cynically-

Mr. Abbott:

No, I was not smiling cynically.

Mr. Macdonnell (Muskoka-Ontario):

-that the realization is beginning to take hold that when you have unreal exchanges you begin to suffer. In the sterling area they are beginning to find that out. The thing is rolling back on them. This is one of the things that give me some hope.

In the meantime, what does Cripps say?- whose mind is brooding over our affairs, as

Churchill said. Cripps has said that if we want to sell more to Britain we shall have to buy more from Britain, and that is all right. In the meantime, however, so far as we can make out Britain is busy selling in eastern Europe goods which could be sold here. Electrical machinery, which could be used in this country, is going to eastern Europe. The unreality is being perpetuated there in a real way.

Let me read briefly two extracts from the New York Times. The first article is dated February 6 and it indicates the fantastic-no other word will describe it-situation which has arisen in Europe by perpetuating the principle in this act which we are asked to renew. The government are not taking cognizance of it. They are not taking steps to meet it. They are just permitting things to roll along, and they are not rolling very well. This article is headed, "Exchange Deals hit U.S. Industry." The text reads as follows:

"Bargain currency deals" and indirect transshipment of merchandise are creating major inflationary problems for American industries which depend upon several important raw material imports, according to authoritative trade quarters here.

Then, later, it says this:

Traders and importers cited the unrealistic "official" exchange rates for certain foreign currencies, including the British pound sterling, as being chiefly to blame for the conditions which have arisen.

At this point, let me say that when we think about exchange rates we should not think only in terms of the United States dollar and the Canadian dollar. There are many other exchanges that affect this country. It seems to me the minister had very little to say about them.

Mr. Abbott:

If the hon. member wants to be fair, let him say what responsibility I have for the exchange rates in other countries.

Mr. Macdonnell (Muskoka-Oniario):

I am going to tell him. We intend to put the responsibility squarely where it belongs. I continue with the quotation:

While Britain has taken steps to prevent exchange abuses, it was held no secret that sizable amounts of pounds sterling are available in nearly all major world markets at substantial discounts from the pegged rate. It was asserted that traders willing and able to buy with such "bargain" pounds are consistently able to outbid United States importers competing for supplies with pounds at $4.03.

That is a nice state of affairs when you consider that these very same people of the United States are the ones who are making the mare go at the present time. I read further from this quotation-the further we go the more fantastic and involved it becomes:

Another aspect of the situation was said to be the willingness of foreign traders and speculators to pay

Foreign Exchange Control more for goods than trade conditions justify in order to convert currency into commodities.

The same conditions were held to apply to other currencies and to be aggravated by multiple rates of exchange, black market discounts and other evidences of over-valued currency which have induced hoarding of stable non-perishable merchandise in many parts of the world.

I have one further quotation from the same newspaper on March 6. This is entitled "Variety of sterling valuations recalls Schacht's trade moneys". Let us remember that that estimable gentleman is the man to whom we owe these delightful controls, because he was the man who started them. I quote briefly from this article as follows:

Since the pound sterling ceased nearly two years ago to be freely convertible into the world's other moneys, the value of the pound in international trade keeps taking on greater resemblance to the intricately devised multiples of German international money spawned during the thirties under the economic inspiration of Dr. Hjalmar Schacht in Germany's frantic pre-war "export-or-die" campaign.

Mr. Stewart (Winnipeg North):

Would the hon. member mind telling me the source of that quotation?

Mr. Macdonnell (Muskoka-Oniario):

It is

the New York Times of March 6.

Mr. Stewart (Winnipeg North):

An editorial?

Mr. Macdonnell (Muskoka-Oniario):

No. It

is an article written by a man called Paul Heffernan.

Mr. Jackman:

A very good writer.

Mr. Macdonnell (Muskoka-Oniario):

One

of the results of this is that Britain is beginning to price itself out of our markets. That is coming more rapidly than we like to think. You have also another fantastic situation which is in great danger of arising, where the sterling area will deal with other countries in the sterling area on a level of prices above the rest of the world. That is something which is, as I say, making the thing fantastic. I should like to read a short extract from the last report of the chairman of the foreign exchange control board, in which he refers to this sterling situation. I read from page 5:

The prices at which commodities are exchanged in such bilateral deals are frequently considerably higher than those prevailing for similar goods outside the protected trading area. Moreover, the discriminatory restrictions imposed on dollar expenditures keep out competition from the western hemisphere while the special financial arrangements referred to encourage trade within the area. In these circumstances trade within the area takes place in many cases on the basis of higher prices than those prevailing outside the area. It is easier for countries within the protected area to buy from each other than from dollar countries because they are better supplied with each other's currencies than

Foreign Exchange Control with dollars, and It is more profitable for the individual producer in any country within the area to export to another country within the area than to dollar countries because better prices are frequently available.

I again ask this question. Facing the situation that the governor of the bank describes there, have we anything to offer? Has the government nothing to say to us except to ask us again to continue the paralysing influence of this act that was passed two years ago? Surely it is fair to say that we have now a new situation. I mean, it is a new situation by reason of the fact that we are faced with this grave dislocation of our trade with western Europe. Some people will say -with a certain amount of truth-and I come now to the question that was asked a few minutes ago-that this dislocation exists because trade has got all snarled up, because we have not been able to reach multilateral trade as we had hoped, and that we have other difficulties. In a measure that is true. On the other hand, I think it is equally true to say that one of the things holding back trade is this matter of unreal exchanges. One of the things that give me hope is that inside the sterling area they are beginning to find that out. I think it is a case of action and reaction. I would suggest that our action is hurting us in two ways. First of all it is hurting us with regard to European trade.

Next I want to take up a point that the Minister of Finance made. He pooh-poohed the idea that we are suffering anything by reason of the loss of American investment. I am aware of what he says, namely, that money is coming up here for bricks and mortar. As I understand it, they do a kind of complicated deal with the foreign exchange control board. If you are an American wanting to come up here to invest, apparently you go in a humble manner to the board and say, I want to spend $5 million, let us say. Then you make a deal, and the board says: If you will buy $2,500,000 at our rate, then we will allow you to buy $2,500,000 at the so-called free rate or whatever you wish to call it. In other words, the board recognizes that rate in an extremely real manner. Although the minister laughed at it and pooh-poohed it, nevertheless his creature, his own board, recognizes that rate, and a great many of the transactions take place under it.

Now I want to deal with what the minister said. He rather sneered at people who merely want to invest money. He prefers bricks and mortar to money. In a way I do also. But let us remember this fact. Ever since the year 1608 this country has been in need of outside investment. We have always needed outside investment. Anyone who does not face that situation is just not looking at the facts.

The second thing I wish to point out is that as long as we have this situation where people put their money in and have it impounded, then we shall have a brake on investment. Although the minister did not say it-he may believe it but he certainly abstained from saying it-what we should aim at as our objective is to get back to the situation we had in the past where people could bring money here and take it out. It was a most useful cushion in the 1920's. It has been a useful cushion again and again to have Americans ready to come in here and invest their money. That we are not suffering now is possible merely because for the moment we have continuing huge government expenditure, high employment and so on. The time will likely come-and it may be nearer than anyone wants to think-when we shall want all the American investment we can get, and it will be available if we are strong enough to get to the situation where we can do away with these rigid exchanges. I am not going to suggest that it be done tonight, but I have a suggestion nevertheless.

There is another thing we should bear in mind. I am sure the minister has not enjoyed the comments that have been made from time to time with regard to him as the author of austerity. Having been brought up as a Presbyterian I am a great believer in austerity, but I think it should take more convenient forms.

Mr. Abbott:

Oatmeal or something like that.