PLIGHT OF SILVER

Dominion, Volume 29, Issue 94, 15 January 1936, Page 16

PLIGHT OF SILVER

Demonetisation by China EFFECT ON AMERICA According to a statement issped last month by (lie National City Bank ot New York, tbe demonetisation of silver by China is going to have world-wide repercussions which may affect the coinage of most countries in some way or another. “The outstanding feature of the situation from the standpoint of silver,” says the article, “is that China Ims now a huge quantity of the metal, which she can sell as freely as she wants in the world's markets without injury to her internal credit structure. How much she will sell depends upon—- “( 1) The extent to which the drop in the exchange rate, and consequent increase in the premium on silver, encourage smuggling rather than compliance witli tlie nationalisation order;

“(2) Whether the Government follows a policy of selling only as much as needed in order to maintain the stability of the currency, in which ease the determining factor will be the degree of confidence which the Government is able to engender in its currency control; “(3) Whether the Government hopes eventually to return to the silver standard on some devalued basis, in which case it will sell no more silver tliav it has to, or whether it intends permanently to demonetise silver in favour of some form, of managed currency, in which case the quantity of silver in China available for sale should be enormous. “Should China elect to dispose of her vast silver hoards, the effect upon silver would be catastrophic. Either the United States Treasury would be forced to hold the bag, enabling China to unload at high prices, or see the whole scheme for raising silver prices go into collapse. When consideration is given to the depressing influence exerted upon silver prices from 1926 on by the stocks in the Indian Treasury, which never amounted to more than 470.000.000 ounces, it is possible to visualise what it would mean to have China’s 2.000,000,000 or so ounces overhanging the market. “No doubt it would be an exaggeration to assume that any such quantity of silver could or would be disposed of. at least not for a considerable period. However, the fact is that a policy supposedly friendly to silver is having the effect of giving the Chinese people an enforced education in tlie use of another form of currency—paper. To the extent that the Chinese prove to be apt pupils in this schooling, by just so much will silver have one of its most important uses permanently curtailed. “It has been claimed by friends of the American silver policy that b‘y raising and holding up the price of silver it would encourage a wider use of tlie metal among nations. As a matter of fact, tlie reverse appears to be happening. As silver lias been made more costly, country after country, including at last China, has found it advantageous to discontinue its use as money. Unless the United States can persuade other nations to use more silver money, something which they thus far have shown little disposition to do, before its buying power as defined in the Silver Purchase Act is exhausted, it looks as though silver were headed eventually for another slump, possibly to levels lower "than ever before. In that event not only will the silver producers pay dearly for the experiment, but tlie United States Treasury will be left carrying an asset against currency that could not be liquidated save at tremendous sacrifice.”