ECONOMIC

International Monetary Fund, which in legal terms continued to be denominatedin gold, would bear a fixed relationship to the dollar. It was also nolonger possible to establish a firm relationship between the value of theSDR, the internationally created reserve asset, and individual currencies. Ithas thus been difficult for countries to discharge their obligations to theInternational Monetary Fund, and countries have been reluctant to useSDR's in settlement of their obligations to each other.There is wide agreement that the SDR should become the formalnumeraire of the future international monetary system. In order to makethe SDR the numeraire not only formally but also in practice, it will benecessary, however, to establish an agreed procedure for calculating thevalue of the SDR in terms of individual currencies. Since the SDR is nottraded in the market against currencies, there is no one relationship whichsuggests itself more strongly than another. The most widely suggested idea isthat the SDR should be valued in terms of an average of the majorcurrencies.HOW GOVERNMENTS BEHAVED IN THE TRADE ARENADuring the first half of 1973 the economies of most industrialized countriesgrew rapidly, and prices rose sharply. Real GNP in the United Statesgrew at an annual rate of about 5.5 percent during the first half of the year,an annual rate well above the long-term average; but growth rates in manyforeign economies were also high in relation to long-term growth. The worldwideboom was accompanied by inflation rates exceeding 6 percent inCanada, France, Italy, Japan and the United States. This rapid growthof demand, together with poor harvests and cutbacks in world oilproduction, created particularly strong upward pressures on the pricesof food and some key raw materials. A number of national governmentsattempted to contain inflation by controlling prices, but by doing so theycreated widespread shortages and other economic distortions.Shortages and soaring prices induced governments to add a new dimensionto their trade policies. In addition to their traditional concerns about accessfor their products to foreign markets, they showed increasing concern aboutaccess to foreign sources of supply for key materials. Similarly, while governmentscontinued across-the-board efforts to promote exports, they alsoshowed an increasing tendency to limit the export of commodities in shortsupply.What Countries Did to Encourage ImportsOn July 18 the Australian Government announced that it was unilaterallyreducing all its tariffs by 25 percent. In an accompanying statement, theGovernment explained that "this reduction ... is designed to restrain priceincreases by increased competition and by stimulating in the short run asufficiently large inflow of additional imports to help meet pressing demand."It was estimated that "the tariff changes will have a direct impact on import209