British Proposal of ‘Collective Approach to the Convertibility’ and Europe: Social and Political Aspects of the Convertibility Problem in the 1950’s

Abstract

The purpose of this article is to make clear how Britain and continental Europe tried to approach liberalization in the 1950s, and reconsider UK’s relation with Europe through the analysis of the European reaction to the British plan of currency convertibility, ‘Collective Approach to the Convertibility’ proposed in the OEEC in January 1953. Contrary to the fixed rate of exchange under the IMF, ‘Collective Approach’ aimed to achieve currency convertibility basing on floating rate of exchange with major European currencies. The Background of the proposal was insufficient contribntion of IMF to achieve early convertibility, and political difficulty to cut welfare and defence budget drastically. The intention of the British policy-makers to adopt floating rate was to achieve balance of payments equilibrium not by the government policy, but as a consequence of neutral market movement.

However, the European Payments Union was already established in Europe as a reaction to the slow progress of convertibility under the IMF. If the major European currencies resume convertibility under the ‘Collective Approach’, the EPU necessarily must be dissolved, but such a case would be disastrous not only to keep balance between welfare states, rearmament, and liberalization, but also to the various projects concerning European integration.

Some policy-makers like the governor f the Bank of France, and German Economic Minister Erhard was keenly interested in the British plan, but on the part of the government, they were fearful of the impact ‘Collective Approach’ would give to the welfare policy, defence policy, and European integration. For them, convertibility problem was not just an market problem, but social and political problem.

The episode of ‘Collective Approach’ shows that although the UK and Europe had common concern for the slow progress of convertibility led by the IMF, their desired prescriptions were different. No European governments were prepared to accept British way of convertibility, because of the social and political impact, and damage to the European integration. It is a paradox that the UK, sceptical of European integration, was constrained by European integration in achieving sterling convertibility in the 1950s.