The Auckland Star. WITH WHICH ARE INCORPORATED The Evening News, Morning News aand The Echo. THURSDAY, SEPTEMBER 12, 1907. THE DEMAND FOR GOLD.

Auckland Star, Volume XXXVIII, Issue 218, 12 September 1907, Page 4

The Auckland Star. WITH WHICH ARE INCORPORATED The Evening News, Morning News aand The Echo.

THURSDAY, SEPTEMBER 12, 1907. THE DEMAND FOR GOLD.

in i ■ Wor the cause that lochs assistance, • War the wrong that needs resistant*, War flic future to the distance, '4m* the good that-me on dm.

It would appear that China has decided to follow the example set by the leading commercial countries of the civilised world and adopt gold as her medium of exchange and standard of value. For untold centuries China has been, financially speaking, a silver country; and even ten years ago the bare idea that she would cast aside the standard she had so long employed in favour of gold would have been scouted as an impossibility. However, the improbable frequently happens, especially in tbe Far East; and the knowledge that India and Japan, once the two greatest silver-using countries in Asia outside China have within the last fifteen years discarded silver for gold, has probably had some effect in persuading the Chinese authorities to follow the exatmple of the Western world in this particular. But we may find a more immediate reason for this unexpected change of policy in tbe trouble that has arisen between China and the Great Powers over the payment of the indemnity that she has pledged herself to furnish in satisfaction of claims arising out of the Boxer rebellion. With the honourable exception of England and America, the Powers concerned in suppressing the Boxers made use of their opportunity to extort money from China by grossly exaggerating their losses and expenses. But even the exorbitant amount of the indemnity claimed was not the worst of it. The indemnity was to be paid in gold, according to the Western financial standard. But China was, as we have said, a silver country; and the gold price of silver fell heavily after the Boxer rising was put down. As a natural consequence, China, having to buy gold with her silver, so as to meet the claims of the Powers, found that as silver was falling in value she had to supply year by year a constantly increasing amount of it to secure the required quantity of gold. That is to say, by insisting on payment in gold the Powers were continually increasing the amount of China's debts to them. China has protested in vain against this injustice; and though America, to her credit, has decided to forego her claims so as to relieve the pressure on Chinese finances, this determination to adopt the gold standard is probably due, in large measure, to China's knowledge of the heavy losses to which she is being subjected through the enforcement of the other indemnity payments. No one can justly hlame China for endeavouring to escape from a position in which she would never have been placed if the Powers had desired to treat her generously or even, equitably. But the consequences of her adoption of the gold standard may indirectly have very serious effects upon the commercial and financial condition, of the civilised world. China is the most densely peopled country in the world, and supports an enormous amount of internal trade. She will therefore require a vast amount • of gold to supply her commercial and industrial needs. Her silver and copper coins will remain in circulation as "small change," but she will now want gold to replace the silver hitherto used in settlement of accounts and in connection with the. foreign excaanges. This means that the demand for gold in the world's bullion market will be suddenly increased by the advent of a new competitor with immense commercial requirements to satisfy. Now, an increase in the demand for gold, unless accompanied by a corresponding increase in the supply, must raise its price; in other words, the value of gohi measured in silver or in other commodities, will rise. But this only means that the price of silver and of all other commodities valued in gold will falL Therefore the 1-Tge demand for gold suddenly set up by China will tend to lower the prices of commodities in general throughout the world. This is not by any means a question of merely theoretical interest. When silver was demonetised in 1873 by France, Germany, the United States and most of the smaller European countries, this meant a vastly increased demand for gold throughout the -world; for the commercial and financial work previously done by gold and silver combined had now to be done by gold alone. Hence the great rise in gold, in other words, the general ' fall of prices measured in gold recorded lin the world's financial statistics fi'om 1873 to about 1903. Since then the increased output of gold from the Rand has steadied the fall in prices by helping to meet the constantly growing demand for gold. But the claims of China for a share in the world's gold cannot fail to intensify this demand, which, unless it is counteracted by increased supply, will inevitably result in a fall in. general prices. A further rapid fall in silver is, of course, an incidental consequence that must have serious results upon the course of exchange in the Far East But without entering into the vexed controversy of single or double standard, we can safely assert that a general and prolonged fall in prices has a deadening and paralyzing effect on industry and enterprise throughout the world; and that China's entry into the ! list'of gold using countries will certainly tend in the direction of raising 4he value of go_&,