MONETARY POLICY

Dominion, Volume 26, Issue 147, 17 March 1933, Page 11

MONETARY POLICY

Future of Gold Standard

BRITAIN’S ATTITUDE Views of Leading Bankers All the leading British bankers in their annual addresses have in effect endorsed tiie official Britisli attitude that there can be no question of Britain returning quickly or unconditionally to the gold standard even at a new and more favourable parity. There must be confidence in tiie ability to maintain the country’s position and the creation of that confidence demands an • adjustment of tiie political, economic, financial and monetary- factors which caused the breakdown of the gold standard.

“No one appreciates more fully than a banker the advantages of a common monetary standard and a common measure of values among the leading nations of the world, nor the difficulties under which international trade is conducted with a system of fluctuating exchanges such as we have at present,” said Mr. F. C. Goodenough, chairman of Barclay’s Ban];. “At the same time I feel that it will be impossible for Great Britain to contemplate a return to tiie gold standard unless and until she can feel sure that conditions are such that she and other countries returning to the gold standard will not again be forced to suspend it. No attempt to return should, therefore, be made until we have grounds for confidence in our ability to maintain our position.

“Before that confidence can be created a number of conditions must be fulfilled, including, as the Ottawa Conference pointed out, an adjustment of the factors —political, economic, financial and monetary—which have caused the breakdown of the gold standard. Among these factors the question of whether debtor countries are to be afforded reasonable facilities by their creditors for discharging their liabilities is of z outstanding importance, for, if any international monetary system is to function successfully, creditor countries must not pursue two contradictory aims. If they require their debtors to honour their engagements, they must refrain from placing insurmountable obstacles in their path and thus causing them to default. The Need For Economy. “As to the immediate future of sterling, I think it may be said that the confidence of other countries in Great Britain, and Great Britain’s confidence in her own future, are becoming more and more apparent and stand out more strongly in spite of her many difficulties and those which confront the world. It is certainly the case that during the past year the people of Great Britain have shown that they are masters of themselves and intend by their own activities, so far as they are able, to surmount their difficulties. “They see more clearly through the surrounding mist of modem economic theories that the old and simple rules and principles still remain unchanged, and must be observed if trade and industry are to prosper. “The need for economy must be kept in mind, for economy is really the main support of sterling at the present time; by it we have seen a restoration of confidence in British finances through the world being assured of our budgetary stability. The two connected questions of economy and budgetary stability are not only principles for ourselves but are also principles for others. We cannot direct the world, but our example can certainly help other nations. “In the meantime it seems clear that countries whose currencies are based on sterling may feel that they should be able to trade with a greater amount -of freedom inter se, especially if they can meet each other’s need by modifications of tariffs to suit one another, and that it will be for those countries whose currencies are linked to gold to consider how their budgetary and other difficulties can be solved under their existing systems.” Rise In Prices Essential

The foregoing standpoint of pur® banking orthodoxy was qualified in the speech of Sir Harry Goschen, chairman of the National Provincial Bank, ny emphasis on the consideration thata rise in wholesale prices “is essential to the solvency of debtors and debtor C °"l . it would be generally agreed,” said Sir Harry Goschen, “that sooner or later the £ must be anchored to a solid foundation, but It is impossible at present to say when the appropriate moment to carry this into effect will arise, and it would be equally premature to hazard an. opinion now on what basis in relation to gold the stabilisation should take place. Of one thing, however, I am certain, that no move in the direction ot stabilisation should be attempted until such safeguards are devised as will, humanly speaking, prevent any recurrence of the events of 1931. “At the Ottawa Conference a resolution was adopted which laid down the conditions which were essential to our return to gold; among them, specified a rise in commodity prices t a height more in keeping with costs, including the burden of debt and fixed charges; and an adjustment of the factors —political, economic, financial, and monetary—which have caused the breakdown of the gold standard in many countries, and which, if not ad justed, would inevitably lead to another breakdown of whatever international standard may be adopted. “The restoration ot some stable international monetary standard is allimportant from the point of view of world trade, and to this country more than any other,” said Sir Harry Goschen, “owing to its widespread trade connections with all nations. . A depreciated pound certainly gives a temporary advantage to our export industries; but, on t'he other hand, the present instability of rates of exchange is a most serious obstacle to the recovery of international commerce and so to the lasting prosperity of our staple industries.” Planning Consumption. “Trade lives by faith,” said Mr. A. A. Paton, chairman of Martins Bank. “Psychological forces are great factors in creating depression, and such forces are equally effectual as remedies. The immediate need is some striking evidence which would justify among business men the right to hope. lor this reason thoughts turn toward the forthcoming World Economic Conference. Were that assembly to give the trading community a clear lead' by some tangible proof of its determination to free international trade from its fetters, and to set forth on a policy of world trade expansion, it would breed that spirit of renewed confidence which is so essential to economic recovery. “The danger may be that the conference will direct its attention chiefly to such fruitless discussions as the advantages or disadvantages of the use of gold a» a standard or measure

of international exchange. The restoration of gold as the standard would not affect the amount bub only the distribution of world trade—most probably to the detriment of those countries which recently were forced to abandon it. Moreover those nations which still cling to the gold standard are scarcely in a position to commend it, for wherever gold is most valued depression Is most intense. While more than one-half of the world's monetary gold still lies in America and France, in spite of increased production from South African and Australian mines and large remittances of previously hoarded gold from India, there is no evidence that such a distribution of gold can be effected as will render that metal the proper medium for measuring the exchange value of the world’s goods between nations.

“All present influences combine, indeed, to prevent nations now freed from gold from becoming again ‘goldminded.’ It is nob merely through such an approach that the remedy will be found, but rather through some attempt to plan and to expand consumption. If this increased consumption can be'brought about, production and prices will automatically respond. The problem for the World Economic Conference is therefore essentially the development of markets, of purchasing power, and of credits, and an effective policy calls for world-wide simultaneous measures strengthened and rendered secure by the assurance of leadership from those countries to which, the world looks for guidance and inspiration.”