miniscule. If more of the world's resources were applied to international cooperation, less would be required for the national defenses.

It is futile to wait for a reduction in world tensions to increase the UN outlays for economic and social development. Indeed, increasing the UN outlays for these purposes may well be one of the best ways to reduce tensions. As the UN organizations become a more important part of our common life, there will be a greater world-wide willingness to rely upon the UN.

How much more money is needed?

The UN long since agreed that members will seek to increase their gross national product (GNP) by at least 5% per year. Success in raising the $250 billion income of the 1.5 billion people living in underdeveloped areas by 5% will require annual investments approximating 18% of their income (given their out/ capital ratios), or about $45 billion annually.

On their own, these countries are doing much through personal and corporate savings, taxation, and borrowing. But it is hard to save much from a subsistence economy. They have raised about $30 billion.

Currently, through both loans and grants, the developed nations are putting up roughly 7 billion (ignoring repayments) mostly through bi-lateral programs, for international development. Suppose an equal sum were to be put up through the United Nations: then the UN would need to be spending not $550 billion (the present total for all purposes), but some $7 billion. And if the developed nations were to provide most of their support for development through the UN channels, the UN ought to be spending at least $14 billion a year which could about bridge the gap between their requirements and their resources.

(This is the magnitude involved in the recurrent resolution in the UN to the effect that member nations reduce their defense budgets by 10% in order to finance economic and social development.)

To put the present outlays for the entire family of the United Nations into perspective, I have noted (WAR/PEACE REPORT, February 1968):

"The UN is a bargain. There are more than two billion people living in the nations that are now members, of the three billion persons on Earth. The UN itself spent less than seven cents per person in 1968 to run the world organization on a budget of $130 million. The various specialized agencies will spend about another 10 cents per person, with budgets of almost $200 million, and the autonomous agencies-mainly the U.N. Development Program-account for another 11 cents per person, with budgets of $226 million. The grand total adds up to a meagre 28 cents per capita per year for international peace and development, with budgets of $550 million. That's about what the U.S. spends on the war in Vietnam in a week!

"An American state with only two million people, not two billion, spends more than that sum providing state services alone, not counting local or federal services. State governments typically spend $300 per capita per year, not 28 cents." Special peacekeeping operations have only required more than $100 million in one year, 1961, for the Congo operation; otherwise these sums have been negligible. But the debates have been monumental. "Never have so many argued so much about so little money as in the United Nations" says John Stoessinger in opening his book on Financing the United Nations System. That the system has worked at all is a tribute to the world's desire that the UN be able to operate, whatever the difficulties.

The Congo bonds occasioned a U.S. Congressional request that the U.S. use its best efforts to promote a pattern of financing that would avoid any future large-scale borrowing. Adequate financing is certainly needed.

The Department of State, I found, tends to resist any suggestion of other means of financing. These hearings are the first public inquiry that begins to respond to the Congressional request.

Obviously the United Nations will not jump from half a billion to 15 billion dollars in economic activity in any short time span, even if the member nations agree that it should. The order of magnitude of the changes being discussed here are nonetheless a significant step toward a meaningful response.

In this connection, the report of the Section on Economic Development in a World Perspective, at the 1966 Geneva Conference of the World Council of Churches, had a cogent observation that merits note (Para. 61, Page 70, of the Report):

"A word must be added here about the quantitative importance of foreign resources in the process of development. Though the contribution of the developed to the underdeveloped countries is far less than one percent of the national income

of the former, it is over three percent of that of the latter. Since the domestic savings of the underdeveloped economies are generally not more than 10 percent of their national income, foreign resources constitute a very high percentage of investable funds. The use of foreign resources entirely for productive investment and an increase in the amount of aid will, therefore, have a far greater impact on underdeveloped economies than is generally obvious."

Until the IMF uses the new Special Drawing Rights, it is difficult to estimate with any assurance what will be the volume of new reserves created per year. Under the Stamp Plan, as originally stated, about $3 billion would be the likely limit. (With world trade expanding at 7% per year, and gold reserves now about $40 billion, the $3 billion figure seems about on target at present rates.)

This sum would add at least 40% to the volume of development assistance now available annually, and could do so on terms much more acceptable to the poor nations. The high costs on conventional loan terms mean that in a very few years, the burden of repayment will exceed the capacity of the poor borrowers. Or, to put it another way, attempting to finance economic development among the less developed countries on conventional loan terms will soon require increased lending simply to refinance existing loans, and make no significant further input of resources to the less developed countries.

There are other ways by which the peoples of the world might strengthen the financial powers of the United Nations, so that it might more fully perform as a major factor in facilitating international economic development. I have summarized some of these in the attached article, as including taxation of world trade (a 2% tax on $240 billion of world trade would yield $4.8 billion), UN development of the resources of the sea bed and of the sea (up to $5 billion by 1975, according to Ambassador Pardo of Malta), UN operation of vital international transportation and communication links, UN taxation of international business firms, other earnings from UN agencies, and voluntary contributions. A combination of two or more of these proposals might well be sufficient to provide revenues adequate to UN responsibilities.

The issue these hearings raised was raised within the IMF and in the Committee of Ten deliberations. Representatives did press for the use of the additional reserves as a way of transferring resources to the developing nations. But the Central Banks of the major powers preferred to concentrate on the problems of their own liquidity and balance of payments, and to dismiss the claims and requests of the poorer nations. Within the context of an IMF meeting, it is understandable that the Central Bankers should have made that choice.

When overseas on behalf of development, I have heard repeated complaints from officials of the developing nations that the IMF has always given primary attention to the concerns of the major powers, for stability, liquidity, and redress of any imbalance of payments. Only in recent years has the IMF even begun to be sensitized to the claims for development as a high priority concern of nations. My purpose in this testimony is to underline that economic development is a commitment, an obligation, of the entire United Nations, not just of the International Bank for Reconstruction and Development and of its IDA, nor only of the United Nations Development Program. Therefore the IMF should also be operated so as to perform this obligation more faithfully. To this purpose, however, the UN Economic and Social Council, and the UN General Assembly, will also have to take affirmative action. As the world prepares for the Second Decade of Development, it is time to re-examine the problems, and to find solutions suited to the next 25 years of the life of the UN.

The day must come, and will come, when there is a world international currency. For the growing world trade needs growing international monetary nourishment-but it is not getting it. Hence world trade has had to cope with, or be hurt by, slow starvation. In the last 30 years, world trade has increased ten-fold, from $24 billion to $240 billion a year, and is growing by 7% each year. But the gold in central banks reserves has increased in the same 30 years from $26 billion to only $40 billion.

To accommodate the rapid growth in trade against the modest growth in gold, the world has had to improvise, to accept supplemental reserves through the holding of one another's currencies, especially those of the major powers. But each time any such currency comes under pressure, some holders have wanted to convert to gold, or when that is impossible, into a stronger currency, and a sense of monetary crisis develops.

The new gold now being produced is going either into personal and industrial use, or into personal and national hoards. So long as there are hopes that the

official price will be raised, the estimated $4 billion of hoarded gold will not come in to world reserves-and the major powers have said they won't buy any more gold. Instead, the new Special Drawing Rights are expected to provide new reserves, in addition to those provided indirectly by the U.S. loss of reserves to other nations.

If the Bretton Woods Conference in 1944 had in fact adopted for the IMF the proposals of Keynes, set forth in the British White Paper of April 1943, the world could have avoided much of the present troubles. Lord Keynes had proposed an international currency (Bancor) "governed by the actual current requirements of world commerce . . . capable of deliberate expansion and contraction of offset deflationary and inflationary tendencies in effective world demand . . .

"More generally, we need a means of reassurance to a troubled world, by which any country whose own affairs are conducted with due prudence is relieved of anxiety, for causes which are not of its own making, concerning its ability to meet its international liabilities; and which will, therefore, make unnecessary those methods of restriction and discrimination which countries have adopted hitherto, not on their merits, but as measures of self-protection from disruptive outside forces." This is still true, 25 years later.

Keynes proposed a currency unit that would be an international clearing house currency, and provided automatic incentives to nations to keep their balances near their quotas, by putting interest rate penalties on being too high above, or too low below, such quotas. The clearing house would have been able to create additional Bancor-but Bancor would not really have circulated. It would have been an international unit of account, and an international reserve, but not a circulating international currency.

The Triffin Plan has, since 1959, tended to dominate the discussion of international monetary reform. Keynes' plan was written before there was an IMF-he helped create it. Triffin starts with the IMF, but would have nations convert their subscription of gold and foreign exchange into Bancor, as an international reserve unit. Triffin suggested that Bancor be expanded by annual creation of an additional 3 to 5% of Bancor units (which is less than trade is now growing), and to this by granting Bancor credits and by the purchase of securities with new Bancor. This would build a nation's deposit accounts just as the Federal Reserve does for member banks.

Maxwell Stamp proposed a few variants to this plan, especially addressed to the great need of the less developed countries for long-term, low-interest loans so that they might accelerate their development, and a play a larger role in the world trade. Under the Stamp Plan, the increased reserves would be lent on 50-year, low-interest loans to the International Development Association (IDA), a subsidiary of the World, Bank, for it to use in making development loans. This would, as Stamp puts it, kill two birds with one stone-the need for greater world reserves, and for greater funds for development assistance. In the process, it would make it easier for the developed countries to sell to the less developed countries. The units would flow back to trading nations' reserves as used.

Stamp had originally proposed IMF creation of $3 billion a year of new reserves. This would represent little more than 20% of an annual increase in world trade, well below the present ratio of reserves to trade, hence a modest figure.

Any of these plans would be superior to the 1967-68 IMF action to create Special Drawing Rights from time to time, which will be allocated directly to each of the member nations, or their central banks, in accordance with their quotas. These will indeed increase reserves, especially of the most prosperous nations. The U.S. would currently be given 26% of the new reserves. Such rights do little to meet the needs of the less developed nations, although these nations have repeatedly pressed their needs upon the richer nations, only to be rebuffed. The easy assurances given by political leaders since 1941 do not translate into adequate credit facilities for poorer nations. The new plan does nothing to meet the total needs of the United Nations for more adequate resources.

A much more creative response is clearly indicated-starting now.

It is time to talk seriously about a world currency, as a reserve unit, as a clearing unit between nations, as additional primary reserves, and as a device for transferring resources in support of the United Nations commitment to "promote higher standards of living, full employment, and conditions of economic and social progress and development."

Moreover, it is time to start thinking of a world currency that would be a circulating currency as well. Many useful purposes might be served by having it circulate not only among central banks, but among citizens and shopkeepers.

For example, foreign travel would be much simpler if meals, transportation, and shelter were being quoted in international currency units so that a traveler could use the same world currency everywhere, and need not adjust to 12 different currency units. Or, for example, the nations with very small populations might prefer to let the IMF be its central bank of issue, and adopt Bancor, or whatever the unit be called, as its own currency.

Gresham's law, that bad money drives out good, might well be reversed when the good money is a world currency. Thus trade in and with nations experiencing inflation might be facilitated if it could also be conducted in stable terms by reference to and use of a stable world currency unit.

Nor is it fanciful now to consider a world currency. Obviously it will only become a truly world currency when it is authorized by the United Nations, and when the United Nations is universal in membership and attendance. However, a legal basis for action now is to be found in Articles 57 and 63 of the UN Charter, as noted above.

The Economic and Social Council could begin the process, and invite affirmative action by the General Assembly, to develop an agreement whereby the International Monetary Fund became, in effect, a Central Bank and a source of support for the United Nations and its other specialized agencies. Obviously control of the amount of such support would have to rest with the IMF, so that orderly growth of world trade was the primary concern, and to avoid the temptations to pursue global inflation for UN purposes, by any action in the General Assembly. Obviously this purpose will be better served as the UN, the IMF, and the World Bank group become universal in membership.

I suggest United Nations consideration of three ways by which the increased reserves (and world currency when initiated) might be used to achieve these purposes:

1. By direct appropriation to the United Nations organizations of such portion of the newly created sums as are needed to operate the United Nations and its specialized agencies (currently, about $550 million).

2. By direct appropriation of at least one billion dollars annually to the United Nations Development Fund, to be used as matching grants to the poorest nations, on a variable or equalization-matching formula, giving the largest matching percentage to the poorest States, and the least to those nearest, say $600 per capita, with no matching for states richer than that. Investment in human capital as well as public infrastructure outlays may be eligible for the matching grants.

3. By investment of the balance of the newly created reserves in the International Development Association, for its use in making loans to developing countries, at terms they can afford, in support of their development programs. There is no reason to give the newly created reserves directly to the Central Banks in proportion to their IMF quotas-the funds when spent will end up in the same Central Banks reserves, and facilitate other world trade therafter, having first served development.

Nor would I contemplate introducing a world currency universally from the outset. Instead, it would be wise to experiment with only the smallest nations the first year, only permitting nations up to one million in population to use it the first year (whether they use it as the sole currency, or as an alternate currency). In succeeding years, as the procedures and safeguards are developed through such experience, successively larger nations might be permitted to use the world currency as a circulating unit. (If the population permitted were doubled each year, the process would take 11 years before India or China might qualify.) I cannot conclude this presentation without a comment about flexible exchange rates. We have recently seen efforts by speculators to bet almost $4 billion on the devaluation of the franc, and the upward revaluation of the Deutchmark. Many of my fellow economists have repeatedly urged policies that have encouraged just such speculation.

The New York Times published a letter of mine, in January of this year, just when such pressure was being placed against France, and when DeGaulle had refused to yield. In that letter, I argued for DeGaulle:

"Flexible exchange rates are a seductively simple answer to a persistent loss of reserves. It is a nice name for devaluation. It could weaken confidence in the dollar. It should be voided.

"Some of my fellow economists recommend it, Market-oriented, they concentrate on the current transactions, the short-run market. Thus they fail to see why the

international money market should not fluctuate the way wheat future markets

do.

"Speculators agree. The currency speculator may have no great obligation to any one country. He sees no reason why money should not be like wheat and respond to his market pressures. He does not see why money managers insist on acting contrary to his own judgments. He could probably make money by manipulating currencies.

"But many business men are more interested in long-term contracts. They want a high degree of predictability, not uncertainty. Flexible exchange rates will mean that both parties to a long-term international contract will want large margins for error. The strength of every national economy is profoundly dependent upon the willingness of residents and foreigners to undertake long-term contracts, in relative security about the values on both sides of the contracts. "Flexible exchange rates would put bankers, including Central Bankers, under pressure to hold their foreign currency holding, to avoid inventory losses. This would tend to reduce the volume of international transactions, and increase their costs.

"Thus DeGaulle has been unfairly criticized. Like many public officials, he bears a heavy responsibility for a healthy domestic economy. He has no responsibility to help the speculators reap a profit by betting against the franc. He has no reason to encourage others to play the same game. For if speculators in foreign currencies are to be rewarded by flexible exchange rates, then the pressures will be heavier and more immediate with the next adverse wind, and international trade will decline. Public officials must be expected to favor the long-range interests of the solid business men over the short-run interests of manipulators of so-called 'hot money.'

"Long-run increases in international transactions are better than quick tricks to restore a momentary equilibrium in international payments. It is more important to encourage trade and development than to reward currency speculators. Of course there should be appropriate steps to restore equilibrium. But these should be trade-expanding, not trade-contracting. Flexible exchange rates represent an advance decision that these will fail, and demand the surgery of exchange uncertainty regardless of consequences.

"Increasing world trade demands increasing world reserves. One day soon the world must go beyond Special Drawing Rights, and adopt a world currency. "The annual increase could help provide capital for the International Development Association, with less political strain on the developed nations. Economists must move beyond Ricardo, Keynes, and White to Maxwell Stamp. So must the world."

In summary

It is evident that my response to the five issues set forth by the subcommittee

are:

1. That the United Nations Charter has long obligated the world to use its machinery to "promote higher standards of living . . . and . . . economic and social progress and development," both in the preambular paragraphs and in Article 55. The only argument against making use of the UN Charter is that the world has tended to neglect this obligation during the first quarter century of the UN.

2. The appropriate links between reserve creation and the United Nations can run in a variety of directions. In effect, I am proposing that the Economic and Social Council perform its function of negotiating for the IMF to serve as a world central bank, with the equity in the increased money supply belonging to the world organization for all its purposes, including the operations of the UN and its related specialized agencies, including the Development Program and including investment in the IDA. The new reserves will flow from the UN agencies to the various national central banks, but ought not belong to them, any more than the assets of the Federal Reserve System belong to the State treasuries of the 50 States!

3. The amount of reserve creation should be related to the demands of world trade, not the need to finance the UN or development. Thus the amount of reserve creation should remain a function of the IMF, not of the Economic and Social Council nor of the General Assembly. But whatever amount is created should belong to the United Nations-the funds are created on the faith and credit of the world organization, not the Bank of France, or the Bank of England, etc.

4. Therefore all the newly created reserves should be available for the total purposes of the United Nations, with special attention to the support of economic and social progress and development.