A Plan for Increasing Liquidity: A Critique

This is a timely book. Professor Triffin, whose ideas were largely responsible for the shape of E.P.U., is a foremost authority on his subject. He writes with lucidity and persuasiveness. He has not only much practical experience of negotiations over a number of years, but also a rich knowledge of monetary history, such as is found in only a few contemporary writers. He is a fine theorist, and at the same time has a very good sense of how abstract doctrine should be resolved into practical proposals. In his main theme he is, according to my view, on the side of the angels: he holds a sufficient provision of international liquidity to be of prime importance. And he has no difficulty in showing that the present provision is inadequate and, over the coming years, will grow more so. In his wide-ranging discussions of monetary philosophy and in his historical retrospects, there is much that might call for comment. But it seems expedient in the space available to concentrate upon his constructive plan for increasing liquidity. His proposal is to transform the International Monetary Fund into being in effect a world central bank ; this is linked with a plan for terminating the use of the dollar and sterling as international currencies. Member countries would hold part of their reserves in the form of deposits with the I.M.F., drawable on by cheque, the deposits to be acquired in the first instance by the transfer of existing assets from the central banks to the I.M.F. These deposits would subsequently be increased by lending and open-market operations undertaken on a rising scale by the I.M.F., and designed to increase world liquidity in the aggregate (i.e. including gold accessions) by 3 per cent. (or 4 per cent. or 5 per cent.) a year. First, it is needful to deal with certain technical aspects of this plan. It is to be feared that it would not give so substantial an increase in liquidity as Professor Triffin appears to claim for it. 1. Initially there might be a rather large loss of liquidity. Central Banks are to surrender certain liquid assets that they now have, mainly foreign exchange and gold, in return for deposits of equal amount with the reconstructed International Monetary Fund. Central Banks are to be required to maintain 20 per cent. of their gross reserves in the form of deposits with the I.M.F. These deposits can be used to discharge international indebtedness, but are to be maintained at 20 per cent. of gross reserves. This requirement must be deemed to ' Gold and the Dollar Crisis, by Robert Triffin. Yale University Press, 1960. pp. xiv +195. 38s.