The Press WEDNESDAY, DECEMBER 26, 1934. British Monetary Policy

Press, Volume LXX, Issue 21356, 26 December 1934, Page 8

The Press WEDNESDAY, DECEMBER 26, 1934. British Monetary Policy

In a statement printed in " The " Press" on Monday Mr Neville Chamberlain, the Chancellor of the Exchequer, outlines the monetary policy of his Government and dwells with some satisfaction on its results. I Up to a point, the satisfaction is thoroughly justified. No government in the world has handled the difficult situation created by the suspension of the international gold standard more wisely; and in consequence no country has withstood the shock of the depression with so little damage to its economic structure or is in a better positio - to take advantage of the forces making for recovery.. This happy state of affairs is largely due to the skill and experience of British bankers, to the strength and flexibility of the British bank.' lg system, and to the closeness of the co-operation between the Treasury and the Bank of England. Too much emphasis cannot be laid on this last point. During the depression the relations between banks and governments have constituted a problem which few countries have been able to solve. On the one hand it has become imperatively necessary that banking policy and the general economic policies of governments should be harmonised. On the other hand, a political domination of the banks has proved as dangerous as ever in the past. Yet without any structural changes or formal agreements the Treasury and the Bank of England seem to have evolved a technique of co-operation which, while it leaves the Government responsible for the broad lines of policy, ensures that banking experience has due weight in the formulation of that policy. Mr Chamberlain can also claim that the policy of cheap money, affirmed at Ottawa and reaffirmed at the World Economic Conference, has been of great assistance to British industry and that its benefits are now being felt throughout the Empire. The least satisfactory part of his statement is that which refers to the world currency situation. Not only does Mr Chamberlain declare that exchange stabilisation cannot be contemplated by the British- Government in existing circumstances 'put he makes no reference to the dangers and difficulties of the present situation. His statement gives the impression, which may or may not be correct, that he is well enough satisfied with things as they are. It can, of course, be admitted that the dollar-pound-franc situation is not favourable to stabilisation. When the dollar was revalued,' its new parity with the franc left the franc seriously overvalued; and since then the pound has held an unstable position between the two currencies. That position must remain unstable until there is an agreement to fix exchanges; and it is difficult to believe that the prospects for such an agreement are as remote as Mr Chamberlain implies. If the French Government could be induced to abandon its deflationary policy on the understanding that thc.e would be no further artificial depreciation of the dollar or the pound, the three currencies would soon reach an equilibrium stable enough to form the basis of an exchange agreement. And from the point of view of Great Britain, such an agreement seems desirable for two reasons. T' 3 first is that the French Government's deflationary policy must be nearing its limits. A further depreciation of the dollar may, as an American economist pointed out the other day, drive-France off gold and precipitate a political upheaval which will destroy French democracy. That is a prospect which neither Great Britain nor any other country can afford to contemplate' with equanimity. The second reason is that British industry cannot hope for a full measure of recovery until there has been a substantial increase in world trade. Mr Chamberlain notes that there has been a substantial increase in Empire trade and correctly assumes that the main factor in this increase has been the stability of exchanges in the terling area. He might have pushed the argument a little further and pointed out that instability of exchanges outside the sterling area has been the main factor in retarding the recovery of Great Britain's foreign trade.