The most essential condition for achieving a fuller convertibility of currencies is a removal of the persistent disequilibrium in trade and payments between the dollar area and the rest of the world. Inconvertibility has not been the disease itself so much as a symptom of the stubborn maladjustment commonly called the dollar gap. In these circumstances discrimination in trade and exchange control has appeared to the dollar-deficit countries as a way of preventing their mutual trade from being strangled by restrictions imposed on payments grounds on imports from the dollar area.

Absence of such maladjustment as a prerequisite to convertibility is particularly important for a currency like sterling, in which some 40 or 50 per cent of the world's trade is conducted. The pound sterling, being a world currency, would, if it were made more fully convertible, inevitably feel some of the strain of the world's dollar disequilibrium, even if the dollar position of Britain herself or the sterling area as a whole had been brought into balance.

But now, as we take a new look at the dollar gap, we find that it seems to have closed. Since the middle of 1952 the current account of the United States balance of payments has been practically in equilibrium: United States exports and imports of goods and services have almost exactly balanced. For a statistical account of this remarkable change I refer to the Federal Reserve Bulletin of October 1953.