THE GOLD BACKING.

Auckland Star, Volume LXII, Issue 143, 19 June 1931, Page 3

THE GOLD BACKING.

BANK CHAIRMAN'S VIEW. NECESSARY SAFEGUARD. In hie address to pr-oprietore of the Bank of New Zealand at Wellington to-day tlie chairman of directors, Mr. Win. Watson, dealt with the subject of gold backing for securities as follows: — "The relations of gold to currency have been in recent years subjects of many and various discussions, throughout which it may be noted that bankers and other experienced men 'have supported a backing of gold as security, whilst others ihaye considered that the note dssue of a country could be safely based on the security of the State without any tangible support.

"Very eerious conditions have been brought about at various times and in different countries by Riving effect to the latter view. Presumably, there might be no limit to what a Government might consider the value of State security, and in recent years examples have been supplied by Prance and Germany bf the evil consequences of State inflation. France paid out State notes until a franc was worth in sterling only one-ndnth of its pre-war value. Subsequently, the fxapc was stabilised at about one-fifth of its pre-war value, and debts and contracts incurred previously to these changes are now comsidered to have been repudiated to the extent of four-fifths of their original worth. Germany went still further, and to a large extent destroyed the wealth of her people toy rendering almost valueless all State and private commitments. Quite recent happenings in Australia in connection with its note currency are so well known that I need only allude to them. It is obvious that fiduciary issues by a State, without gold backing, while inflating-prices temporarily, are not adaptable for payment of imports, or other exchange purposes. These rein arks are sufficient to make it evident that the currency of the Dominion is conducted on sound and safe principles; is of such elasticity as to cope with the requirements of any expansion in trade, and is very remunerative to the State. The proclamation constituting notes legal tender expires in January nextDoubtless, the Government will see the wisdom of extending the period for two or three years to permit of a return to normal conditions."