EXCHANGE MARKET INSTABILITY CREATES UNCERTAINTY FOR TRADERS AND INVESTORS, ASSERT GATT CONTRACTING PARTIES.

Dec 4, 1984

EXCHANGE MARKET INSTABILITY CREATES UNCERTAINTY FOR TRADERS AND INVESTORS, ASSERT GATT CONTRACTING PARTIES.

GENEVA, NOVEMBER 30 (IFDA/CHAKRAVARTHI RAGHAVAN) -- GATT Contracting Parties asserted Friday that in certain circumstances exchange market instability "contributes to market uncertainty for traders and investors and may lead to pressures for increased protection".-

The agreement on one of the contentions issues between the European Community and the U.S., and differing from an IMF study, made clear that the CPs were not questioning the floating exchange rate system, in force since 1971, after the U.S. unilateral action ending the par value system of the fund.-

The problems of uncertainty for traders and investors, the GATT CPs affirmed, could not be remedied "by protective trade action"-

Adjustment to uncertainty over exchange market instability, they said, could be more difficult for small traders when hedging opportunities were limited, and for small trading countries and Third World countries, "inter alia when the geographical distribution of their trade cannot be easily diversified".-

The IMF study had said that in view of the possibilities of hedging on the forward markets in foreign exchange, fluctuations in rates had little impact on trade.-

The CPs urged that their concern regarding the relationship between exchange market instability and international trade be taken into account "in ongoing efforts within the IMF to review the operation of the international monetary system with a view to possible improvements".-

The CPs themselves agreed to keep under consideration, through further exchange of views, "the relationship between exchange markets instability and trade".-

At a press conference earlier in the day, Paul Lutyens, the EEC delegate, had pointed out that in raising the issue at the 1982 Ministerial session, the Community had presented "documentary evidence" of the effect on trade of the fluctuations over periods of six, twelve and 18 months between the major currencies.-

The IMF study, he complained, had not dealt with the problem they had raised over the "trend movements" of exchange rates but merely, day-to-day fluctuations.-

The EEC view was backed by several leading authorities including the international institute of economics in Washington, and by the New York Federal Reserve Board, Lutyens noted.

The U.S. traders were complaining that because of the way the exchange markets were moving "even junk from Europe now finds a market in the U.S.", he added.-