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N discussing convertibility for Western Europe, I am reminded of American contracts in which may be read the words 'Europe, including the British Isles'. In this paper I shall deal with Western Europe including the British Isles; and I shall also refer to the United States, because it is not possible to discuss these monetary questions without analysing the problems involved as they concern the United States. What is convertibility? Most experts have their own definition. I have a very simple one. Convertibility is the return to free and effective exchange markets, which means that one can go into the market and buy a currency without having first to obtain a permit from an official. Hence convertibility is the antithesis of exchange control. Now this definition is very important, for it shows that convertibility presupposes free markets in currencies and that it is therefore part and parcel of the system of a free economy, so that one cannot think of convertibility without connecting it with all the other elements which make up a free economy. I will try to illustrate what I mean by making a reference to what happened in I947. In accordance with some rather regrettable provisions of the Anglo-American Loan Agreement of December I945, an attempt was made in I947 to restore a limited kind of convertibility of the pound, but it was a failure, and the very fact of failure has exerted a most pernicious influence, because it has delayed further developments in the same direction. People have been afraid to go ahead. But what was the fundamental mistake made in I947? It was the attempt to introduce convertibility in the currency sphere before it had been introduced in other spheres of the economy. In fact convertibility must not be thought of until a free economy, with free markets, is being restored over a wide field; and this, in turn, is possible only in so far as headway has been made in getting rid of the excess of money which was a legacy of the war. In I947 there was still an excess of money in relation to the available supply of goods and services; and there was not a free market economy. Think of what has happened since I947. We have made great progress, for a free economy has come into being over a very wide field through the re-establishment of free commodity markets, through the ending of rationing, and through the elimination of the excess money supply; the pursuit of an inflexible cheap money policy is a thing of the past-and therefore one can feel that what happened in I947 should not deter the various countries from making a second attempt, now that we have fulfilled the