March 21, 1949 (20th Parliament, 5th Session)


Harry Rutherford Jackman

Progressive Conservative

Mr. Jackman:

Mr. Speaker, before the noon recess it had been pointed out that variations in exchange rates followed natural economic causes and brought about the rectification of any lack of balance there might be between the currencies of various countries. I referred to the fact that the Bretton Woods agreement brought about certain rigidities which did not allow exchanges to fluctuate so that these discrepancies between international currencies could be ironed out in the ordinary self-righting process. It was also pointed out that while the move on July 5, 1946, might have been one in which the great majority of the people could have concurred, especially in the direction it took, because there was no doubt at that time that our dollar was worth a great deal more than ninety cents in relation to the United States dollar, it would be foolhardy for anyone to say that the value of the Canadian dollar vis-a-vis the United States dollar since 1946 has, at all times, been as one hundred is to one hundred.
It has not been so because the currency of any country will vary according to conditions and according to the prospects which exist in men's minds from time to time. These variations bring about self-righting devices which are good for any country, and which are even necessary, because if the correction does not take place at the appropriate and natural time, then the correction will very likely have to take place at a subsequent and perhaps much more painful time.
In his remarks the other day the minister built up as strong a case as he could for the policy that the government has pursued through its agency, the foreign exchange control board. If the Canadian dollar were, I will not say devalued, because that is not necessarily the policy of the Progressive Conservative party-our policy is simply aimed at freedom of exchange and an approach to reality as soon as that is possible -but if the Canadian dollar were to go to ninety or ninety-five cents, it would be not only harder for England to sell, as the minister pointed out, but as I pointed out it would be easier for England to buy. It is a question of where the greater benefit to Canada lies.
I might point out further that, if our dollar did find a naturally lower level and England were able to buy more from us but we were not able to buy so much from England because of our cheaper dollar, we would nevertheless, because England bought more from us, have far more sterling and it might be that having more sterling we might be able to buy more goods in the United Kingdom even though the prices were fractionally

higher. There are so many repercussions in the matter of foreign exchange that it is quite beyond the power of any of these so-called experts to say exactly what the reactions and repercussions are going to be.
For generations we have had an entirely free economy whereby exchange found its own level. Under that system we prospered and our country built up one of the highest standards of living the world has ever seen. May I point out to you, sir, that as the minister mentioned the Canadian dollar is fairly strong at the present time. But it might be that in place of the Canadian dollar selling at a discount in relation to the United States dollar, it might sell at a premium. Such a thing is not beyond the bounds of imagination. If the Canadian dollar were to sell at a premium, as it has in the past, in relation to the United States dollar, the contention of the member for Spadina (Mr. Croll), that his people would have to pay more for oranges if our policy were carried out, would be reversed. If by following its natural course the Canadian dollar were to sell at a premium, we could import citrus fruits for the people of this country at cheaper prices than it is possible to have under control.
I should like to mention the recent move of Belgium which was made known last week. This article is taken from the Globe and Mail and is attributed to the New York Times. It is headed "Belgian Monetary Move is Seeking Free Economy." I would think this article was very much to the point at which hon. members on this side of the house are driving. We are attempting to have a free economy and get away from the restrictions which lead to complications one cannot expect, against which one does not know how to guard oneself, and which alter the course of international trade and international liberty. The article reads as follows:
Almost unnoticed, Belgium has just taken two daring steps toward making the Belgian franc a fully convertible currency.
The first former belligerent country receiving Marshall plan aid to tackle the realities of post-war commercial competition, Belgium has become the first country to make good on promises made by all Marshall plan countries to re-establish internal-external monetary stability.
Then farther down the article reads as follows:
The National Bank took a calculated risk. It bet, in effect, that the Belgian economy could stand the shock of being called upon to pay off in goods many millions of dollars in claims represented by Belgian franc notes that had been selling at a discount on free markets against the dollar and the Swiss franc. This is a risk no other European ex-belligerent has taken.
The second significant move toward throwing away the monetary crutches was Thursday's decision to permit United States and Swiss individuals and companies, whose accounts in Belgian banks have

been frozen since the war, to use their money freely for purchases in Belgium.
Both moves are part of a consistently followed economic policy unique in Europe, because it places the establishment of a free economy above economic security. Both steps are risky because they might lead to a serious outflow of capital which Belgium cannot afford. Belgians believe that if every European country retains shackles on commerce until there is no risk in removing them, Europe will be bogged down forever in economic controls.
Authorities plan to unblock other foreign accounts the same as the American and Swiss.
In other words, the great Belgian economists, financiers and statesmen realize that if these controls continue indefinitely Europe will become bogged down in economic controls and there will not be the same freedom in exchange of goods or the same general level of prosperity that there might be if these controls were abandoned. Belgium has taken the bull by the horns and eliminated some of the rigidity which formerly held sway over exchange movements.
Canada has subscribed to the Bretton Woods agreement and, with the exception of a small group in this house, every party enthusiastically endorsed it at the time it was passed in 1945. In the last annual report of Bretton Woods, however, we find that the chairman of the fund states that the board is quite willing to have the various countries come before them, put their problems before the members and re-examine whether or not the rate of their national currencies is sound in view of present conditions. So that it would seem that the international monetary fund governors do not for a moment say that the fixed rates of exchange which the various countries established when they became members of the fund are necessarily the right ones; it would seem that these rates should be examined from time to time, and that perhaps now is one of the times when such an examination should take place.
When Bretton Woods was formed it was hoped first that the various clauses under that agreement would shorten the time during which international currencies could once again find a free convertible level; and, second, that the formation of Bretton Woods would ease the period of readjustment until exchanges became once more freely convertible. We have seen that this purpose has not been possible of fulfilment partly because of the unusual situation in which Europe, Great Britain and some of the other countries found themselves after the war. In place of looking forward with happy expectation to the near future when these various currencies will be convertible, we find that in many of the European countries there are growing up some of the evils which Bretton Woods was formed to prevent. Indeed we find some of these evils are growing up in more exagger-29087- 107i
Foreign Exchange Control ated form than we would have expected to find them if there had not been Bretton Woods itself.
Under the international monetary fund it was hoped that any correction of exchanges that had to take place would be done through an expansion, rather than through a restriction, of trade. Yet my colleague, the hon. member for Muskoka-Ontario (Mr. Macdon-nell), gave to the house this morning various extracts from the report of the foreign exchange control board indicating that there was a tightening of commerce rather than an expansion of it, due to some of the currency restrictions which are today imposed. I point out therefore that there is no use of anyone endeavouring to play the legendary part of King Canute and the sea. You just cannot stop an economic trend. If we endeavour to defeat economic laws through too great rigidities in the operation of a measure like the Foreign Exchange Control Act, we are only storing up trouble for ourselves, and indeed multiplying that trouble.
One has only to refer to page 5 of the report of the foreign exchange control board to realize some of the things that are going on. On that page one finds the following:
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.
That is the type of thing that Bretton Woods was supposed to prevent. To continue:
Moreover, the discriminatory restrictions imposed on dollar expenditures keep out competition from the western hemisphere.
That is, we in the western hemisphere cannot compete there because they have not the necessary dollars and they make it impossible to exchange in their own sterling or whatever currency they are using.
In these circumstances trade within the area takes place in many cases on the basis of higher prices than those prevailing outside the area.
That again is the very type of thing which Bretton Woods sought to obviate.
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 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.
That is one of the reasons why we have not been getting as much European goods as we might have been getting, and as much as we would have been willing to take. Those exporting countries are getting a higher price in the European circle than they would get if they exported to the dollar area. Indeed I hope that all hon. members will read the report of the board because I think it is

Foreign Exchange Control factual and is objective in many cases. I should like to read this further excerpt:
It is, however, also important to recognize that there is a risk that the special measures taken to maintain and develop trade within this group of countries-*
That is, in the ERP countries.
-may have the effect of reducing their productivity as well as their capacity to earn dollars and so to balance their accounts in this desirable way.
This risk is present because-as will be apparent from what has been said-trade within the group of countries concerned does not move entirely on the basis of competitive price and quality.
In other words, world trade is anything but free under the Bretton Woods agreement. What we are asking for is that there be less rigidity and that, as soon as possible, we get back to the normal state of affairs; because we are breeding certain things which will make conditions more difficult than ever. As I said this morning, the cure may indeed be worse than the disease itself. To quote further from the report:
The tendency for trade within the protected area to take place at a higher level of prices than that prevailing for similar commodities in outside countries cannot fail, as has been noted, to make it more profitable for the individual producer in the countries concerned to sell within the area than in dollar countries.
In other words, keep your goods away from dollar countries and let the dollar countries make donations to you as much as possible.
And a general consequence of the developments outlined is to raise the price and cost structure of the countries inside the area and so reduce their capacity to export to dollar markets.
In other words, what is going on there has the effect of increasing the cost in these European countries so that their level of cost is so high that they cannot sell to Canada. If they had devaluation of their currencies, they would find they could sell to Canada because devaluation of their currencies would mean that, in relation to the Canadian dollar or at least to the American dollar, we could buy their exports notwithstanding the fact that their internal costs were too high for the export market. To continue:
Canadian trade has already been adversely affected by the creation of this protective currency and trading area and it is not possible at this moment to foresee how serious these developments will be from our point of view during the next few years.
Here the board cautions us that the tendencies which are developing in Europe at the present time may become aggravated; and it is impossible even for those great foreseers of our destiny, those in the board, to foresee how serious these developments will be from our point of view during the next few years. Like myself, they admit that they cannot tell what is going to happen, but they want to play the artificial way instead of

allowing natural economic forces to come into operation. A few lines farther down we find this statement:
In this connection encouragement is to be drawn from the recent successful efforts of the United Kingdom to increase their exports to Canada. The performance of other parts of the sterling area and most other ERP countries is less encouraging, and there seems little doubt that competitive offerings would find Canada able to absorb larger quantities of goods from these countries than we are now obtaining.
In other words, in this country we are doing all we can to put Europe on its feet, and yet because of certain exchange fixations, I shall call them, the producers of these countries have been able to make a greater profit in their own currency by sending their goods to some country other than the United States or Canada. We find that while we take all we can, we are not getting from them what we should get because, as the report so well states:
. . . there seems little doubt that competitive offerings would find Canada able to absorb larger quantities of goods from these countries than we are now obtaining.
As I said this morning, if it were not for the fact that we in the Progressive Conservative party are eager to have this measure passed on and put in statute form as soon as possible, we should certainly ask for a hearing before the banking and commerce committee, so that we could find out from the writers of this report exactly what they mean by individual cases which gave rise to putting these words in this published report of the foreign exchange control board.
At the bottom of page 6 the report continues:
The countries whose exports are affected by these restrictions will be confronted with the choice of finding some alternative use, at home or in other foreign markets, for the goods previously exported to the dollar-short countries or making special arrangements in an effort to retain these markets.
The reason I read this paragraph is that the gentlemen who are advising the government on foreign exchange also foresee in the future further difficulties, and nothing is being done under Bretton Woods at the present time to keep down these difficulties and to approximate what would be the natural working of normal economic laws. The report goes on to say that these are the difficulties that we may expect to find under the present arrangements:
These arrangements could involve the provision of the exports without payment in foreign exchange, through the extension of grants or credits, or special deals in which the exporting country agreed to use the proceeds of its exports to take more goods from its dollar-short customers even though these goods were higher in price than had to be paid elsewhere. To make room for these relatively high-priced imports it would be necessary to impose discriminatory import restrictions.

Thus we have to go against our undertakings under Geneva; so that we find that even the foreign exchange control board does not offer us very much hope under the present system of controls. If there is no hope under that system, then surely the least we can do is to go back to the natural working of things where, when one currency gets out of line with another, certain self-righting devices are put into force automatically, and we again come to a normal and natural balance of currency between countries.
If our dollar in Canada were to go to some slight discount-and I do not expect it would be many points in discount in relation to the United States dollar today-we might find that the situation was beneficial to us, because we are primarily a primary-producing country. Let us look at our geography from east to west. In the maritimes we find fish, apples and potatoes, all export commodities. If our dollar were slightly less than a hundred it would give us an advantage in exporting to the United States market or to other markets.
If we go to Quebec and Ontario we find our great storehouse of forest products and minerals, most of which again are exported to the United States. Passing further west to the prairie provinces we find wheat, cattle and bacon, all of which would be easier to export if we had a slight discount on our dollar. When we come to our pacific province we find there forest products and fish, which are export commodities and which would find a readier market in the world today if our dollar were slightly less than one hundred cents. Therefore we have nothing much to fear if our dollar is at a slight discount from the United States dollar.
Another reason why we should go into this matter with the so-called experts to find out exactly how the problem hits them is that when this matter of exchange was before the house earlier we were not only in a period of full employment but there were more jobs than there were applicants available. Today we are beginning to have some spotty unemployment, and in some instances that unemployment is in the export industries, for example, lumber. The policy that a country pursues in relation to its exchange when it has full employment as against a time when there is a shortage of employment is entirely different. We found after the war that when every country was short of goods it wanted to establish its currency at as high a rate as possible because it was a buyer. The more they could get for their pound or their franc, or whatever it might be, the better off they were. Now we are beginning to see at least the possibility of running into a situation
Foreign Exchange Control such as we saw in the thirties, when the whole attempt was to depreciate currency in order to export unemployment, as it was called. In other words, make your goods cheap enough so that other countries will buy them, and keep your population active and busy and give them at least a fair standard of living.

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