GOLD STANDARD.

Auckland Star, Volume LXII, Issue 243, 15 October 1931, Page 9

GOLD STANDARD.

BRITAIN'S DEPARTURE. EFFECT IN DOMINIONS. DISCUSSION BY DR. NEALE. ■ v The absence of restrictions on the importation or exportation of gold and the maintenance of paper currency at a fixed value in terms of gold are, under modern conditions, the essentials •of a gold standard currency, said Dr. E. P. Neale, secretary of the Auckland Chamber of Commerce, who was the speaker at to-day's fortnightly luncheon of the chamber.

"It is probable that the departure of England from the gold standard was not deliberate so much as compulsory —by reason of a sudden demand from foreign countries for gold from London on which they had claims by reason of investments on the short-period London money market," he declared.

While the gold standard was in operation, said Dr. Neale, the' London market price of standard gold- could not fall below £3 17/9 per oz, because the.Bank of England would always give that amount for gold. It could hot rise very much above £3 " because 'it was always obtainable from the bank at that rate. . As long as there, was. the possibility of freely interchanging notes and gold there obviously could be no serious divergence between the value of gold and the value of the notes.

Purpose of Gold Standard. The first purpose of a gold standard was to impose an automatic limit oil the indefinite expansion of credit. Credit could not he extended beyond the limit set by the gold reserve of the country's banking system. A proportion of payments was always to be made in gold, and liabilities to find gold had to be regulated with regard to the banks' cash reserves. If, for any reason, gold tended to disappear, the banks had to take steps to reduce their liabilities and so reduce the other forms of means of payment which were available to industry and commerce. The second purpose of the gold standard was: -to maintain stability of the foreign exchanges—the buying and selling of the money of other countries—within narrow limits, and thus secure a ccrtain measure of correspondence in the levels of commodity prices in all gold standard coun-

tries. Fluctuations in exchange rates •were then dealt with at length by the speaker. "It must be realised," said Dr. Neale, "that so long as world prices continue to fall as a result of gold immobilisation in the United States arid elsewhere Britain must choose between the alternatives of stable exchanges and falling prices on the one hand and fluctuating exchanges and stable prices on the other. The MacMillan report considered that unstable exchanges were a greater evil than unstable prices, because the uncertainty resulting from fluctuating exchanges would very seriously affect international trade. Temporary Advantage Only. In conclusion, Dr. Neale said that the result of the present situation, so long as it lasted, should be a building up in London of the balances of the Australian and New Zealand banks, due to the improved trade balances facilitating a drop of their exchanges towards parity with sterling. That effect would be greater the fewer the countries that elected to tie their currencies to ster-r ling rather than to gold. Most of the advantage, however, was. likely to be temporary oiily. Furthermore, if Britain ultimately returned to the gold standard on the old parity, a reverse process would have to be set afoot before the necessary relation between prices in Britain and America to restore parity of exchange cjrald be achieved. If, on the contrary, Britain decided to revalue her pound note in terms of gold, or to abandon any fixed parity of gold altogether, the trade advantages of countries whose currencies were tied to sterling would be permanent.