Marriott Alumni Magazine

Fall Winter 1977 Exchange

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Page 25 of 51

EXCHANGE: SPEAKING OUT James L. Burtle is vice-president in the Business Economics Group, W. R. Grace & Co., New York City. A graduate of the University of Chicago, Burtle has served as an economist for the U.S. Marshall Plan and for the International Labour Office in Geneva, Switzerland. In his current position, he is responsible for advising on foreign exchange policy and forecasting foreign exchange rates. A past president of the New York Metropolitan Economic Association, Burtle is the coauthor, with the late Sidney Rolfe, of The Great Wheel, a recent book on the international monetary system. He also serves as adjunct professor of finance at Long Island University. In an interview with Exchange, Burtle discussed such subjects as the impact of floating exchange rates, the U.S.’s projected current account deficit, and attempts to stimulate world imports. What role has the International Monetary Fund played in the world currency markets since floating exchange rates were introduced in 1971? The International Monetary Fund is still very important on the world scene, but its role today is quite different from what it was in the 1960s. Prior to 1971, the IMF was a protector of fixed exchange rates. When the exchange rate of a particular country was threatened with devaluation, the fund would often act through short-term loans to try to prevent the devaluation unless the currency was very weak. Today the fund is not interested in protecting rates at a fixed value but rather is concerned with how realistic the rates are. If a currency of a particular country appears to be out of line with respect to the currencies of its major trading partners, the IMF encourages the central bank of that country to allow its currency to float toward what appears to be an equilibrium rate. The lending function of the IMF is a powerful tool in encouraging central banks to bring exchange rates into line. Although the IMF is still a short-term lender, the difference between short-term and long-term loans is not probably academic because an IMF short-term loan tends to certify that the country’s financial management is sound, and that, in turn, provides a basis for long-term loans from private international lenders. Since the introduction of floating exchange rates in 1971, how have the multinational corporations responded in order to minimize their foreign exchange risks? Most companies have added additional staff for the study and forecasting of foreign exchange rates. Many have also reorganized their accounting systems to pro- Illustration by Ron Eddington 24

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