Currency and Ottawa

Dominion, Volume 25, Issue 232, 27 June 1932, Page 11

Currency and Ottawa

Sir, —It is generally agreed by economists that the direction in which we must look for relief from our present difficulties is from a rise in the general level of prices. Wholesale prices had to be cut by Britain in the interests of financial stability, when she found she was losing her gold to France and other countries. Other countries followed suit, owing to the reaction from the course adopted by the world’s great arbiter of wholesale commodity prices. In proportion to the extent to which Britain's previous gold holding is restored, it is fair to assume (other things being equal) that she could expand her credits again, thereby enabling a rise in the general level of prices. The United States and France hold almost three-fourths of the world’s gold, and consequently their concurrence would be necessary, pefore a redistribution sufficient to assist in . this direction could be brought about. No doubt that is what the Prime Minister of Great Britain has in view in his suggestion for a conference with those countries in September or October. In the meantime, we are to have the conference at Ottawa, and the question of attempting to raise the general price level will be discussed there. As our own Minister of Finance has brought up the latter, I would like to submit two proposals which might be worthy of consideration on that occasion. _ 1. Standard gold, as used for the purpose of adjusting international exchangee, contains 22 carats of fine gold and 2 parts of alloy. If an arrangement could be arrived at by the nations to accept a lower proportion of gold, the present gold holding of each would be increased in the same ratio. For instance, if it were decided to accept 11 carats instead of'22, that would double the present gold holding of each of the nations, whatever it It would make no difference to the position of the United States or France, because their gold would increase m value with the rest. Consequently, the relative positions of each country would remain as at present It is not the fact that these two countries have so much gold that is the cause of the trouble, but the fact that the others have so little. Therefore, if the holding of these others could be increased, it would assist them. Without jeopardising the position of America or France, and by helping the rest of the world to recover, they would be helping themselves. Of course, the increase in value would be fictitional only, but if it were generally agreed upon,, the effect would be the same for adjusting international exchanges, as though standard gold of 22 carats were used. It may be found advisable to fix a ratio corresponding with the present fall in prices (about 40 per cent.), in which case 13 carat gold would be accepted. As, however, a restoration of the 1929 price level could hardly be expected, a higher gold content would no doubt be called for, and even if it were fixed at 15 or 16 carats, that would greatly assist in raising the general level of prices. By debasing the gold in this way, the gold base would be broadened, thus enabling an expansion of credit .and by that means, prices could be raised. This is confirmed by what is known as the “quantity theory of money. 2 The other suggestion is an alternative—namely, that all the countries of the Empire should adopt the gold exchange standard." Under this system (which has nothing to do with the straight “gold standard,” by the way), the different countries would ship their gold. to London, where it would be deposited with the Bank of England for investment in bills of exchange, and Government or other liquid securities. This would mean that the gold would be earning interest’and, at the same time, a profit would be made by the sale of the gold at the increased price now ruling for that metal. The gold would then be at a point where it is most needed for settlement ot the international exchanges, and the note issue of the various countries concerned would be based on “sterling” instead of gold, as at preS6 ln a recent article, Professor Copland made a similar suggesting, using the term “sterling exchange standard to describe the course recommended.. In doing so, he stated that, by strengthening the gold holding of the Bank of England, and thus enabling Britain to expand her credits and so raise prices, much greater benefit would accrue to the Empire than was. to be expected from any preference in tariffs which might be got by bargaining at the conference. There seems to be considerable force in his contention. It may be said that. Australia recently passed an Act, authorising the Commonwealth Bank to use her gold in this way, so that the procedure is not something entirely new. India has kept her gold in London in the same way for many years, and the Philippine Islands keep theirs likewise in New York. It may have been noted in the cables recently that several States of South America moved their -old from London to New York, and their --old exchange standard” is now based on the latter, instead of the former financial centre. Whatever may be . done to strengthen the gold reserves m London should assist in the direction of raising the price level, the greatest need of the moment. . - r x These suggestions may or may_ no sist towards a solution of our difficulties, but they are put forward in the hope that tiiey may be found worthy of consideration by the experts, who will be dealing with such matters at Ottawa. —I am, ete ” GEO. TOOGOOD. Wcllngton, June 23.