|
(Monday, 5 August, 1968)
It wasn't going to be easy solving the economic problems of a country
overnight, thought Chancellor Sir Keith Joseph. But the PM had given him a
clear remit - be sensible! It didn't matter if things were done
differently, provided they worked.
His Permanent Secretary, Sir William Armstrong, had come up trumps. There
had been a Treasury proposal on file since the fifties. Sir William was too
professional to say it directly but the Chancellor suspected that the
proposal would have been implemented years ago, but for a succession of
spineless occupants of Number Eleven.
Sir Keith's predecessor, Edward Heath, was now languishing on the back
bench. Heath had tried to maintain the DUK at US$1.40 The impact on
Britain's balance of payments had been devastating. The DUK had been
devalued to US$1.10 The dislocation had been terrible as businesses and
individuals adjusted to the sudden change in value and the inevitable
inflation that had occurred. Worse still, foreign investors had anticipated
the move, selling DUKs beforehand and buying them back after more cheaply.
The cupboard was nearly bare at the Bank of England. And printing more
dollars sterling at a time of inflation was unthinkable.
So it was that Sir William suggested the Robot. Instead of the best and
brightest in Treasury trying to set a value on the DUK, that task could be
left to the Robot, freeing up the mandarins for more important duties. When
Sir William first mentioned the Robot, Sir Keith was put in mind of some
sort of electronic thinking-machine, the kind that the Sunday colour
supplements were always going on about. But the Robot was simpler than
that.
"We don't set a price on the DUK at all, Chancellor," the Permanent
Secretary explained, "we let the market do that."
"The market?"
"Exactly, Chancellor. If a chap wants to buy DUKs he finds a chap that
wants to sell them and they agree on a price."
"So no need to involve the Bank of England at all?"
"Strictly speaking, no, Chancellor. Not unless you want to make money for
the government."
This comment interested Sir Keith. Normally the Bank lost money on currency
fluctuations, as speculators bought or sold with the Bank in anticipation of
needed movements. "How so, Sir William?" he asked.
"Rather than being a central clearing house the Bank just becomes one
trader. And the Bank can buy or sell DUKs, or any other currency, in
anticipation of how the market may value the DUK."
The Chancellor thought out loud. "Certain future government initiatives
could impact on the value the market places on the DUK. Budgets and things
like that." He paused. "If the Bank of England were privy to information
like that, it would be insider trading!"
"Indeed, Chancellor, it would be highly improper as you note. The Governor
of the Bank of England and his directors would have to maintain an
arms-length relationship with key members of HM Government. I include you
in that category, of course." Here, the tone of Sir William's voice
changed, becoming almost conspiratorial, "Nevertheless, with an above
average Board of Directors, one would expect the Bank to make a healthy
profit. A profit that could be paid as a dividend to the Government."
"That might help balance the budget," said Sir Keith, cheerfully.
Sir William put on a doleful expression, "Alas, Chancellor, were that it so.
The dividend would be useful but just a drop in the bucket. Well, maybe a
splash. The balance of payments, the budget deficit..." The civil
servant's voice trailed off.
"Well, it's like my old father used to say, 'You can't spend more than you
earn. The world doesn't owe you a living!'"
"Exactly, Chancellor. Would that all your predecessors shared your
starkness and clarity of vision."
"Hmm, yes, previous Chancellors have been a little stop-go, haven't they Sir
William? Doing little cuts then taking off the handbrake before things are
properly fixed. This is what everyone expects from us."
"It isn't really for me to say, Chancellor."
"Sir William, what if we did some really swinging cuts, to welfare,
education, health..." In his enthusiasm Sir Keith suddenly thought the
unthinkable, "...and defense? Cut a billion dollars off the budget. What
price might the Robot put on the DUK then?"
"We might even see a return to the heady days of US$1.40, Chancellor."
"The market wouldn't be expecting that, eh Sir William?" Sir Keith held a
thoughtful finger up in the air. "Apropos of nothing, Sir William, as the
new Chancellor I really should meet with the Governor of the Bank of
England. Arms-length of course. Claridge's, I think. Can you get young
Ian to tee up a luncheon appointment in my diary for one day next week?"
"Yes, Chancellor."
"The Robot, eh? I might just make my name with this initiative."
"Yes, Chancellor."
[If you'll just let me continue.]
| 