The Bank Rate and the Balance of Payments (1

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The reduction of the Bank rate to 6 por cont from 6$ per cont was moo» not because of recovory by sterling, but because of the inflow of money from abrow! to take advantage of high interest rates. Originally the move was made partially for this end (the inflow improves the currency rosorves position by bringing in foreign currency) and partially to assist the crodit squeeze by making it more expnsive to borrow money. However so much money has come in (some estimates put the figure as high as £180 million) that it is exerting a downward prossure on money market rates, which in turn undermines the credit squeeze. Moreover a high propo: tion of the money is in short term loans which could be withdrawn at any time, thus cousing instability and encouraging speculation in sterling, as its rate of exchans> varies against other currencies, The iiconomist is of the opinion that this move vill defeat its own purpose, by encouraging even more foreign money — 'to gst in while the going is good'. 411 these manipulations really indicate is the decline of Driiain as a world financial power and the complete inability of solving the problems thus brought about by capitalist moasures,