FRANC IN DANGER

Auckland Star, Volume LXVI, Issue 130, 4 June 1935, Page 7

FRANC IN DANGER

WHAT WILL FRANCE DO

GOLD BLOC WEAKENING.

INFLUENCES IN BACKGROUND.

(By HUGH C. JENKINS.)

Why are people standing in front of the banks in the streets in Paris, wait, ing patiently but nervously to with' draw their deposits and turn the cash into gold? They do not want the metal, and they will, in all probability, hire a safe-deposit box in the same bank from which they withdraw their savings, and. lock up their gold in the same building. Such conduct has-been witnessed before in recent years; distrust has been epidemic. . Because it is not possible to purchase less than a bar of gold, a new trade has grown up. A broker buys a bar of gold, and then cuts it up. selling a half, a quarter and an eighth, according to his customers' requirements, charging a brokerage on each transaction. To turn notes into gold, then, implies an expense which is a loss. There is also the natural tendency of the French people to hoard their savings by nutting banknotes in the proverbial stocking. It therefore only takes a period of mental uncertainty to arise for a large demand for gold to make- itself felt in France. A period of freedom from crisis psychology has fortunately ' prevailed for some time past, and bank deposits and note hoards have . tended to increase, but now apprehension is entertained concerning the stability of the franc, and there is, in consequence, a panic demand to turn monetary paper into bullion. Devaluation Feared. The immediate cause of the currency panic is the fear that the gold content of the franc will be reduced below its present legal limit. France ie at tho moment "on the gold standard," that is ;o say, the owner of notes issued by he Bank of France can demand redemp;ion in gold, provided the transaction is large enough for him to demand a gold bar. If the Government- decided to permit the Bank of France to withhold the right of redemption of the notes, it ia fairly certain that devaluation will follow. Every holder of gold will then recoive—after devaluation —less in gold, or foreign exchanges, than lie is entitled to get to-day. Notes, or a credit balance at the bank, will depreciate to the extent of the depreciation in the value of tho franc. The holder of gold thereforestands to make a profit, while every other creditor may suffer a loss. France has already experienced one devaluation since the war, and the memory of that still remains fresh in the minds of, the people. ■ . The Gold Bloc. But why should France devalue her currency? That is not so simple to answer. She is, of course, the mainstay of the few remaining countries which have maintained themselves on gold. In each of these countries gold has been more or less, freely interchangeable with the note issue. While these countries remained firm in their determination to stay "on gold" France had the honour of being the financial centre of the bloc. Italy, however, has become so embarrassed in her economy that she is now on a managed currency, and for all real purposes "off gold" _ tr> the extent that she is not an active party to the bloc. Switzerland, on the other hand, is moving to a crisis_ condition when devaluation will possibly be the only solution of her present troubles. Belgium has been so adversely affected that she has been unable to remain on gold at her old parity, and has depreciated the value of the belga by about 25 per cent of its former parity. The Root Causes of the Crisis. Strange as it may appear, it is nevertheless true that the monetary crisis which is affecting Europe to-day is the outcome of decisions arrived at in Tokyo and .Washington, operating in London. These are the root causes of the current crisis. The Japanese yen and the American dollar have been deliberately undervalued as compared with sterling, giving an advantage to the export trades of Japan and America over those of thu United Kingdom and" those countries whicli comprise what is known as the sterling group. The result of such conditions has been that London has not been anxious to "see sterling rise in value as compared with other currencies, particularly the dollar and the yen. In fact, there has been a deliberate passivepolicy pursued, in the hope that the sterling will be depreciated and so offset the advantages whicli America and Japan have enjoyed through the monetary factor. Exchange Equalisation Fund. It should be here mentioned that the Bank of England operates a fund called the Exchange Equalisation Fund. The money is provided by the Government, plus the profits accruing to it from the sale of gold on a rising market. The sterling funds which constitute the fund are used to buy sterling exchange when it is too plentiful, and therefore likely to depreciate in value, and to sell sterling exchange to the market when it is scarce and likely to appreciate, the object being'to resist violent fluctuation of sterling in 'relation to the dollar on the one side and the gold bloc on the other. This relative stability of sterling has made London a haven for money fleeing from either depreciation or the fear of it. The disturbed state of mind which has prevailed for some time upon the Continent of Europe has resulted in foreign capital accumulating in London, and this has had a tendency to depress sterling. In view of this influence, theexchange equalisation fund has been only partially operative.

A Devaluation Race ? A month or more ago Belgium appealed to France, not for financial assistance, but a wider market in France, but while France was willing to extend credits it was not willing to lower the tariff. Britain has also put up her tariff on imported steel from 33 1-3 per cent to 50 per cent, which strikes a further blow at one of Belgium's chief export industries. In desperation because of this limitation on her exports, and the comparative overvaluation of her currency, with Switzerland, and possibly Jlolland, moving in the same direction, the question which is troubling French minds is whether it will !>e worth while continuing to adhere to the gold standard. Will there be another crop of devaluations, each new devaluer under-valuing its currency in order to gain bouic temporary advantage; or will another conference be called and an effort made to bring all currencies to a stable relation to each other? i