GREAT BRITAIN AND FINANCE

Press, Volume LXX, Issue 21355, 24 December 1934, Page 13

GREAT BRITAIN AND FINANCE

Chancellor on Cheap Money Benefits CURRENCY STABILISATION NOT YET WANTED (BIUTIsn OFFICIAL WIRELESS.) (Received December 23, 5.5 p.m.) RUGBY, December 21. A comprehensive survey of the financial and economic situation was made by Mr Neville Chamberlain (Chancellor of the Exchequer) in the House of Commons in the debate on the adjournment for the Christmas recei::;.

Dealing with the spreading influence of cheap money he referred in the first place to the saving of interest effected by the conversion of Government 5 per cent, and other loans, which had resulted in the saving of £37,000,000 annually in interest on the National Debt. Following upon that was the consequent reduction in the rate of interest on short-term money and, although that was not of a permanent character, yet it was helping the finances at present. Between this long-term and shortterm reduction of interest they had been able to reduce interest costs on the National Debt by something like 20 per cent, since 1931. That was a considerable alleviation of the country's burdens but it did not stop there. heavy fall in interest rates in London had affected other parts of the Empire. There had been a number of conversions by the Dominions, in particular, Australia. This was benefiting the finances of Australia and increasing her purchasing power, which was, in turn, of benefit to Great Britain. Again new loans were being raised in the colonies on practically the same basis as they could be raised here for the British Government. The colonies had thus fully shared in the advantages. Municipalities Benefit The same applied also to the borrowing of local authorities. Some of the larger authorities had raised money i. 1 3 per cent., and smaller authorities had been able to borrow at from 33 per cent. Those were non-permanent loans. Long-term borrowers again were able to obtain loans at something like onethird cheaper than at any time since the war. That, undoubtedly, had been of very great advantage. As for industrial borrowers, they had been able to convert something like £100,000,000 since the Nation,Government took office, resulting in a saving to them of about £1,000,000 annually. Dealing with the effect of cheap money in the industrial field, Mr Chamberlain referred to the work of the Bankers Industrial Development Company, which was formed largely at the instigation and with the assistance of the Bank of England for financing large industrial corporations after proper examination of their prospectus, and that of credits designed to provide mediumterm loans of smaller amounts to small firms.

Regarding the situation in Lancashire, which was raised during the debate, he agreed that a good deal of the trouble arose out of the financial chaos during the 1920-21 inflationary boom. Its lesson was that they should not repeat it in attempting measures which would bring other parts of the country into the same condition. Mr Chamberlain dealt with a suggestion for attempting to stabilise values as between the pound and the dollar. Here, he said, the question was that of the level for stabilisation. A common international standard of currency would be very helpful. The levels of currency in the countries of the Empire and those i countries linked with sterling had remained very stable for three years and the exchange of goods and trade showed a very gratifying increase at a time when international tradt generally was inclined to shrink. Franc and Dollar Out of Step At present sterling -had on the one side the gold block and on the other the dollar, which was also on a gold standard. The real difficulty was that the dollar and the franc were not in hr.rmonious relationship. In consequence of this disharmony the pound, which stood bi.ween the two. was dear in terms of dollars but not so dear in terms of francs. The present freedom to move in either direction and M -us achieve a fairlv stable position for th round would be lost if they had stabilisation. An attempt to stabilise while that disharmony existed would result in a position similar to that when they had to go off gold or follow a policy of inflation. In the present circumstances they could not afford the risk involved in stabilisation and thus rob themselves of then freedom to move the pound as required. Passing on to the relations between the Government and the Bank of England, Mr Chamberlain accepted the view that the ultimate responsibility for the country's monetary policy must lie with the Government, and said that as they were not on the gold standard the relationshiD between the Treasury and the Bank of England must be closer than ever. Indeed, the whol; management of sterling was discussed continually between representatives of the Treasury and the bank. On this question, however, he called attention to the accepted resolution at Genoa in 1922 that banks which were especially banks of issue should be free from political pressure and should be conducted on lines of prudent finance. Mr Chamberlain said the Government's financial policy generally had not changed in any material aspect since, on behalf of Empire delegates, it was declared at the London conference.

He believed that if they continued to pursue the policy laid down at the conclusion of that conference it would continue to produce good results. He saw no reason why they should not anticipate a further rise in the wholesale prices of primary commodities /which would probably do most to overcome the inharmonious elements in the

world's currency system, and he looked forward with confidence to the time when they could once again embark on an international currency standard. Meanwhile, he saw no reason for pessimism. Home trade had not yet reached saturation point and foreign trade, if not back to its old levels, was still showing an upward trend.