Haberler’s 1954 essay treats postwar convertibility as the central test of whether the non-communist economies would return to multilateral liberal trade or remain inside a managed system of controls, quotas, and currency blocs.
Currency convertibility is not merely a much debated international economic problem; it is also an issue that has divided the 'Free World'.
His first task is definitional. Convertibility no longer means gold redemption but the ability to exchange one national money for another at the ruling rate. Haberler carefully separates full from partial convertibility, resident from nonresident rights, current from capital transactions, and old from new balances. These distinctions matter because governments can proclaim liberalization while preserving discrimination through import licensing, travel controls, state trading, or blocked sterling balances.
For example, any holder of pound notes or sterling balances should be free to buy dollars or any other currency.
The essay’s normative claim is that convertibility is the monetary form of multilateral free trade. If currencies are freely usable, buyers need not match exports and imports bilaterally, and countries can trade through the world market rather than through administered clearing arrangements.
As a consequence, every country and region can specialize on those lines of production where it has the greatest comparative efficiency and can import those commodities which other countries can in turn produce more efficiently.
Against defenders of inconvertibility, Haberler argues that exchange control is not a harmless technical device. It requires bureaucratic allocation of foreign exchange, supervision of imports, and restrictions on consumer choice; in practice it becomes a mechanism for planning and protection. The 1947 British attempt at sterling convertibility is his chief warning case. Its collapse did not refute convertibility itself, but showed that it cannot be restored by treaty while inflationary pressure, excessive domestic demand, old balances, and overvalued exchange rates remain unresolved.
It cannot be repeated too often that any form of open or repressed inflation is incompatible with convertibility and stable exchange rates.
Yet Haberler does not advocate a simple return to gold-standard deflation. Because wages are sticky and mass unemployment politically unacceptable, adjustment should not depend on forcing down domestic money wages. His preferred route is monetary discipline combined with exchange-rate realism. He criticizes the Bretton Woods adjustable peg for encouraging speculation and official delay, and favors transitional market testing of exchange rates.
What I mean by flexibility is a freely fluctuating or floating rate, the value of which is determined by demand and supply in freely accessible markets.
The later sections answer practical objections. Lower American tariffs and better customs procedures would help, but are not preconditions. Nor does superior American productivity make dollar balance impossible, since trade depends on comparative rather than absolute costs. European recovery, especially in West Germany and the Netherlands, shows that policy discipline matters more than alleged structural dollar scarcity. EPU and the sterling area are useful transitional devices, but regional multilateralism remains inferior to worldwide convertibility. Haberler’s enduring point is institutional: open trade requires currencies that are usable, prices that are allowed to adjust, and governments restrained from converting payments difficulties into permanent administrative control.
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