GOLD STANDARD.

Bay of Plenty Times, Volume LX, Issue 10697, 16 October 1931, Page 2

GOLD STANDARD.

BRITAIN'S DEPARTURE. The absence of restrictions on the importation or exportation of gold ana the maintenance of paper'currency at a fixed value in terms of gold art, under modern conditions, the essentials of a sold standard currency, said Dr K. P, Neale, secretary of the Auckland Chamber of Commerce, who was the speaker at yesterday’s forlnishtly luncheon of the chamber. “It. is probable that the departure of England from the sold standard was not deliberate so much as compulsory—by reason of a sudden demand from foreign countries for gold from Loudon on which they had claims by reason of investments on (he short-priced London money market,” he declared. While the gold standard was in operation, said Dr Neale, the London market price of standard gold could not (all below £3 17s 9rt per oz, because the Bank of England would always give that amount for gold. It could not, rise very much above £3 17s 10 id. 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 Die value of the notes. The first purpose of a gold' standard was to impose an automatic limit on the indefinite expansion of credit. Credit could not he extended beyond Hie limit sot by the gold reserve of the country’s banking system. A proportion of payments was always (o he made in gold, and lial.ipiies to find gold bad (o be ■ rftgnJalcd willi regard to (be banks’ cash reserves. IC, for any reason, gold ‘.mlcd K- disappear, Die banks bad 'o take steps to reduce their liabilities and so reduce the oilier forms of means of payment which were available lo industry and commerce. The second purpose of (he gold standard was lo maintain stability of the foreign exchanges the buying and selling of (he money of oilier countries --wit!',in narrow limits, and thus secure a certain measure of correspondence in the levels of commodity prices in all gold standard countries. Eliminations in exchange rates were then dealt willi a I length by Ihc speaker. “It must lie realised,” said Dr Neale, “(hat so long as world prices continue to fall as a result of gold 'immobilisation in (lie United States and 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.

In conclusion, Dr Neale said that (lie result of the present situation, so long as it lasted, should he 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 currncies to sterling rather than to gold. Mos of the advantage, however, was likely to he temporary only. Furthermore, if Britain ultimately returned to (he gold standard on the old parity, a reverse process would have to he set afoot before the necessary relation between prices in Brit' ain and America to restore parity of exchange could be achieved. If, on tne contrary, Britain decided to fe\.line her pound note in terms of geld, or to abandon any fixed parity i f gold together, the trade advantages of countries whose currencies were tied to sterling would he permanent.