The Press WEDNESDAY, JULY 5, 1933 The Future of Money.

Press, Volume LXIX, Issue 20899, 5 July 1933, Page 8

The Press WEDNESDAY, JULY 5, 1933 The Future of Money.

If Mr Roosevelt is a student of history he is probably repeating to himself words used by Canning a little more than a century ago: " So " things are getting back to a whole- " some state again. Every nation " for itself,, and God for us all. The "time for Areopagus, and the like "of that, is gone by." For his explicit statement of United States monetary policy is the death-knell of the World Economic Conference. Since the beginning of the year it has been assumed by the British and European governments that the conference would proceed first to the fixing of parities for the principal currencies and then, if success was achieved in this sphere, to the scaling down of tariffs and the removal of other obstacles to trade. Mr Roosevelt's flat refusal to enter a temporary scheme of exchange stabilisation, his denial, indeed, that such stabilisation would benefit the world, makes impossible any immediate attack on trade barriers, since the effects of tariffs imposed by any State depend on the value of its currency in terms of other currencies. The most the delegations now in London can do is to pass a few general resolutions and return to their respective countries to watch and pray. Mr Roosevelt, no doubt, will be branded a wrecker throughout three-quarters of the civilised world; and admittedly he has incurred a heavy responsibility. Temporary exchange stabilisation offered the easiest way out of the present dangerous monetary situation and the best approach to the problem of economic disarmament. It is at least possible that the rejection of this remedy, unsatisfactory as in some respects it is, may, by encouraging competitive inflation, involve the world in a financial chaos without parallel in history. Yet in justice to Mr Roosevelt it must be said that his monetary pronouncement has a positive as well as a negative side. He has chosen stability of prices as a more desirable objective than stability of exchanges; and there are few reputable economists who would not admit that, assuming both objectives to be equally easy of attainment, the choice is sound. "Contracts and business cxpecta"tions which presume a stable exchange," says Mr Keynes, "must "be far fewer, even in a trading " country such as England, than " those which presume a stable level j " of prices." But a policy of price stabilisation is faced with formidable difficulties. Its foremost advocates, including Mr Keynes, Sir Basil Blackett, and Professor Irving Fisher, have admitted that it requires a far more accurate and comprehensive system of price indexes than at present exists in any country in the world. Moreover, such a policy postulates reasonably effective control by the banks of the volume of currency and credit and consequently a centralised banking system. The existence in the United States of so many independent banks, the legislative bias against branch banking, and the independence of the Federal Reserve Banks would make this control difficult, if not impossible. Certainly the attempts of the Federal Reserve Board to check the boom of 1929, -and its subsequent attempts to arrest the deflationary process, are not encouraging precedents. Mr Roosevelt has, it is true, wrung from Congress sufficient powers to enable him to reorganise American banking; but the reorganisation will take a long time—and time is precious. Assum- ! ing, however, that Mr Roosevelt has a fair prospect of success, which he has, what policy is Grea+ Britain to adopt? Broadly speaking, three courses are open to her. She can -link sterling to the franc and put herself at the head of a European monetary bloc; she can continue her present policy of using the Exchange Equalisation Fund to main-, tain a reasonably stable dollar exchange; or she can follow America's lead and concentrate on price stabilisation rather than exchange 1 stabilisation. The first course involves obvious dangers and is most unlikely to be adopted, though it is possible that the Bank of England and the Treasury may come to the help of the franc if prices rise substantially in America in the next few months. The objection to the j second course is that it leads nowhere and that the Exchange Equalisation Fund may not stand the strain. The wisest and perhaps the inevitable course is the third, for if both Great Britain and the United States succeed in stabilising prices, stability of exchanges will follow. Moreover, if the Bank of England and the Federal Reserve Board are frank with one another, it is probable that price stability in both countries could be achieved without serious exchange fluctuations. Such a policy would not be as revolutionary as at first sight it seems. Although in theory Great Britain's post-war monetary policy has aimed at stability of exchanges, in practice it has hesitated between the two desiderata of stable exchanges and stable prices. Even before the abandonment of the gold

standard the bank rate was used frequently, if fitfully, to influence prices. Since the end of 1931 the value of the pound sterling has been based on its internal purchasing power and it has consequently been necessary to keep that purchasing power within certain limits. From this it is but a short step to the managed currency system contemplated by Mr Roosevelt. It is, of course, impossible at present to make even an intelligent guess at the turn events will take. There may be a wide discrepancy between what governments decide to do and what circumstances allow them to do. One thing, however, is certain. The World Economic Conference, or any other international conference, will have as much chance of restoring the gold standard as of resurrecting the dead.