THE SOVEREIGN AND THE DOLLAR

Evening Post, Volume XC, Issue 71, 22 September 1915, Page 6

THE SOVEREIGN AND THE DOLLAR

The negotiations for the Allied Powers' loan to be raised in the United States have advanced to the stage when a syndicate to underwrite the proposed issue is in course of formation. Th© currency of the loan will be five to ten years. The rate of interest has not been named, but/as England iteelf set the pace at 4^ per cent, with the last great war loan, and Canada had to pay 5 per cent, to New York for a recently-floated shortdated loan of 45,000,000 dollars, 4f or 5 per cent, may be the rate. But for the moment the rate of the loan need not be considered, for its flotation does not mean that the Powers concerned are so impoverished by the war, terrific as the expenditure is, and is likely to be, that they are forced to go to America for more money. The proposed loan k an expedient by which the balance of exchange, disturbed by the war, may be,restored to its normal equilibrium. It is not at first easy to understand the present relations of the dollar and the sovereign. iThe position may be made clearer by a grasp of the fact that the United States is exporting 'to the Allies more commodities, be it food' or munitions, than the Allies are returning other goods to pay for them — in simpler words, as "a set-off." These commodities must, of course, be paid for. There are three ways : — Payment m other goods of like value and volume; payment in gold coin or gold baars; or deferred'payment, accomplished by floating a loan. The Allies are utilising almost all their energy just now upon turning out munitions of war or satisfying other military needs, and meeting civilian domestic requirements, and 'are not producing their wonted quantities of exports. But they Lave the gold to pay " to America for what is bought in the States over and above what America has bought from them in return. Nevertheless, to send that gold across the seas costs, in freight, insurance, war risk insurance, and other charges and expenses, a comparatively large sum of money ; besides, the Allies themselves are reluctant to part with their gold. Moreover, America does not want so much gold — it is literally too much of a good thing as a means of exchange, and there is a limit to its employment in the arts and manufactures. When anybody has too much of a good thing it is fairly cafe to assume that that good thing will cheapen in price. Put in another way : An Ameri-

has a credit' of £100,000 in London oa acconnfc of goods sold and delivered. . H« wishes to utilise that money. Ifc wonld yield him in New York $4.88 per sovereign in normal times, bat he i& now only able to recei-ve from his banker $4.72, or 8d in the £1 less. It was recently as low as Is 8d out of the £1. How to overcome .that difficulty and restore the disturbed relations of the dollar and the sovereign is the reason for the visit of the Allies' financial mission to New York with the purpose of floating a loan there. That done, no money in coin need pass until the balance of exchange is again disturbed. The actual payments for munitions or other commodities to American manufacturers are made out of the loan money, and the decline of exchange js arrested. While American bankers with pro-German sympathies may do all they can to obstruct the loan negotiations, it is doubtful if they can exclude themselves from participation in the loan. Hence, probably, their objection to the use of tho money to pay for munitions may be an attempt to "save face."