The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News and The Echo. MONDAY, MARCH 12, 1923. CURRENCY AND GOLD.

Auckland Star, Volume LIV, Issue 60, 12 March 1923, Page 4

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

MONDAY, MARCH 12, 1923. CURRENCY AND GOLD.

for the cause that lacks assistant*, For the u>rong that needs resistance, For the future in the distance, And the good that we can da.

A few weeks ago the Governor of the Commonwealth Hank, commenting on the state of the exchanges and the effects of the inflation produced by war conditions, observed that one of the first steps toward the re-establishment of the world's currency on a sound and stable basis must be the restoration of "free trade in gold." As the adverse rate of exchnngo and the over-issues of inconvertible paper which show no sign of becoming redeemable in gold, arc still

.i grievous burden to commercial and financial interests everywhere, Sir

I Denison Miller's remarks on this question arc well worth a little attention. The point of his criticism lies in the fact that as soon as war-conditions existed, Britain and the Dominions took precautions against any possible outflow of specie and bullion, not only by making their notes for the time practically inconvertible, but by imposing stringent restrictions upon the export of gold. Naturally Britain was anxious to guard;' her gold reserves as long tun! as care- i tully as possible. Hut in spite of these | restrictions the balance of trade with America became rapidly so adverse to i Britain that large sums in gold were rc-l milled to the United States in the vain j hope of steadying the exchanges. After a time not only did this remedy prove inadequate, but the Americans, over- ' loaded with gold, declined to take any more, and various other expedients were ' employed lo enable Britain lo discharge her debts and secure a continuance of trade with the United plates. Since the war, though Britain has to sonic extent, recovered her position in a financial! ■ sense, gold has still been accumulating ill • the United States, and the reasons that ' in the first place induced the British Oov- : eminent to restrict the export of gold i still hold good to the extent of rendering!' it advisable to maintain this embargo ' for the purpose of economising what gold is loft in British hands. The Dominions, I which followed Britain's lead in the' early stages of the war. in regard to in-' ; convertible paper and restriction on gold; ' exports, are naturally disinclined to!-' | return lo pre-war conditions until I Britain takes the initiative, and so for j the time the disastrous financial sitna- . | tion created by the war is being indefinitely prolonged. I i All Ibis should Im> more or less obvious \ ' and familiar to those directly concerned ; ! in commercial and financial affairs. But • what, is not generally understood is the | ' precise nature of the difference made lo j the world's currency system by im- ' posing artificial restrictions on the free movement of gold. I'nder normal con-, (tit ions so long ?.s gold may move freely! [ from one country to another, the level! of prices and the rates of the exchanges j as between different countries tend to j regulate themselves automatically. For,' i example, if there is more gold "linn usual ' I circulating in England - and naturally., ; therefore, more credit money than usual. ; i based on gold —prices in general will ; tend to rise. This means that gold in l.'ngland for the time lias lost some of I its purchasing power. If prices continue jo rise, the purchasing power of gold ! may fall till it liei-onies more valuable l as bullion abroad than as currency at home. A tendency will t lien be set up for gold to flow out of the country as bullion, and this process, will go on as long as the export, i. profitable; that j

is. as lon** as, .the purchasing power of gold is so low jn England as lo make it profitable to sell gold abroad -as bullion rather than use if, at home as money. Then in a short, time the ainoutr of gol.l. and the amount of credit, money l,a-c,I upon it. circulating in England, will be | reduced, prices will fall again, nil signs of inflation "will disappear, and the rate of exchange Imtweeu London and Paris - which is merely the measure of '.he relative purchasing power.-* of Ihe French and British currencies- vv ill Im> restored to its normal level. Such is is ttutomaitic. readjustment of prices and ox- | changes: and it, goes on so long as pa|iei' is convertible, and gold may be exported freely. Hut the point to lie observed is that, as soon as ever t his free export is obstructed, then nidation begins, and the level of the exchanges is disturbed, perhaps for a long period, and always vvith disastrous consequences. Il follows that, as Professor Caiman Ims shown in his excellent little treatise on money, the restriction of gold exports has virtually the same oH'cot - - in producing inflation ami a deranjrement of •he exchanges—as an unlimited issue of inconvertible paper. lt is therefore clear that Sir Dcnison Miller is on sound ground when he points to t lie necessity for restoring free trade in .gold as n preliminary step toward .lefla.l ion an.l , the recovery of a favourable rn'e of exchange. But it is manifest that Stis, tralia and New Zealand cannot aid in this matter independent ly of KngUtnd. ami as l.nglaml bus lost to,, much gold •o'America already, and vv ishe- to safeguard whait is left, the financial -in,;,tion in this . spii't, is likely to remain I precarious aud inisatisfacUir.y lor some j time to come.