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GIBRALTAR & GENERAL DEPARTMENT)
STERLING AGREEMENTS
1.
As you know, the Sterling Agreements are due to expire in September 1973. With the Treasury and the Bank of England we are now considering what kind of arrangements, if any, might follow them to see us through the next two or three years. (It is most unlikely that any scheme for consolidating the balances agreed by the IMF's Committee of Twenty, which is looking into the possibilities of long term international monetary reform, would be able to be operational before then.)
GENERAL
2.
The world monetary scene has 'changed a great deal since 1968. Fixed (if adjustable) exchange rates were then the order of the day. The Sterling Agreements were negotiated following the loss of some £500 million over a period of 5 months, due to diversification from the official balances of Sterling Area countries. Today, as the recent currency crises have made clear, such a sum is no longer decisive: the UK suffered a reserve los9 of £1000 million in less than a week last June before floating. There are now such large sums of money which can be moved around the international exchanges freely, either deserting currencies before an anticipated fall or moving into currencies before an expected rise, that no exchange rate can be held against them unless they are defended by measures of international co-operation which have so far not been forthcoming. The very size of these movements tends to bring about the situation which they are intended to anticipate.
EUROPE
3. We said during the negotiations for our entry to the EEC that we were prepared to envisage an orderly and gradual run- down of official sterling balances after our accession. We also said during the monetary discussions in February and March 1973 that we would rejoin as soon as possible the European "snake" (the arrangements agreed in 1971 by the then Six to narrow the range of fluctia tion between Community currencies). The official balances are one factor (but not the most important one) which has prevented us from being able to rejoin the snake unless far- reaching measures of co-operation and mutual support are intro- duced; these are not yet politically feasible. Meanwhile, it has
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