THE VALUE OF STERLING

Press, Volume LXXI, Issue 21423, 15 March 1935, Page 10

THE VALUE OF STERLING

DRIVE AGAINST THE POUND EXPLANATION BY PROFESSOR TOCKER The renewed drive against the pound, referred to in a cable message published to-day, was discussed yesterday in an interview with "The Press" by Professor A. H. Tocker, of the economics department of Canterbury College, who explained the causes behind such movements and the steps that are taken to check undue effects. "The drive against the pound," said Professor Tocker, "appears to mean that sterling is being sold on the foreign exchanges in abnormally large quantities and consequently the price is tending to fall. It should be remembered that in most countries the foreign exchange rate is a price determind in a free market by the supply of, and the demand for, the currency concerned. Selling of Currency ''Any person possessing sterling and wanting other currency for any purpose will sell sterling and purchase other currencies. Any person possessing other currencies and wanting sterling will offer the other currencies on the market and purchase sterling. The market for foreign exchange therefore arises from the desire and the necessity for remitting funds between countries. Normally such remissions of funds are made mainly to pay for trade transactions or on account of permanent investment. "In times like the present, when many currencies arc not attached j to a safe physical basis such as gold, public confidence in the stability of the values of various currencies may change, and many individuals may attempt to transfer funds from one currency to another in a most. erratic and unpredictable manner, j It appears that movements of this: type are occurring now, and many people who had been holding big funds in sterling are selling thensterling holdings and transferring j their funds to other currencies. j . Methods of Check "The British exchange equalisation fund was established some years ago to prevent irregular movements like this from exercising their full effect on exchange rates. When sales of sterling are abnormally great, the exchange equalisation fund, part of which is held in foreign currencies, will be used to buy some of the surplus sterling offering. If the 'supply of sterling is too small to meet demand:: and the price therefore tends to rise unduly high, the fund will again be drawn on to supply additional sterling for the market. By methods such as these, irregular fluctuations in the price of sterling, that is the sterling exchange rate, are ironed out. But it is obvious that the exchange equalisation fund may be drawn on very heavily, and a prolonged movement in one direction may exhaust it. In these circumstances it could not be used till some change had swung the market again in the ; other direction. "It is difficult to suggest at this distance the causes which affect ' sterling at present: for some time ' past the market has been a little i erratic and irregular. This irregui larity must be caused by the move- [ ment of floating funds and is probably due at bottom to the varying confidence in the relative security ; offered by different currencies."