DECLINE IN STERLING

Evening Post, Volume CXV, Issue 13, 17 January 1933, Page 10

DECLINE IN STERLING

EXCHANGE AND PRICES

MIDLAND BANK ANALYSIS

"Evening Post," 17th January. An exhaustive analysis o£ the causes or reasons for decline of sterling in relation to currencies of gold countries has . been made by the Midland Bank, London. " Dealing wifih the British Government's Exchange Equalisation Account, the bank endeavours :to remove the misconception that that account was intended to be used as an instrument to control exchange; its use wasj to cheek violent movements due to strong speculative or other special causes. Relative price and.capital movements are examined, and then the causes , of . the recunt fall in sterling are dealt 1 , with in detail. The conclusions arrived at are firstly, that' undue : depreciation of the exchange value of steriing increases the cost to British industries of a large part of imported raw materials, and therefore tends to reduce possibiEties of profits which provide the stimulus; to trade recovery. A rise in commodity pi'iees in general, induced by internal monetary policy affords renewied opportunities of profitable business, stimulates demand, and promotes business recovery. For this reason it is desirable tliat the exchange value of the pound should be kept in as close conformity as jpossible with its inherent value ■ as determpied by relative purchasing powers. . Meanwhile,' every effort, should be made toi stimulate a home-produced rise in commoduty prices. ERFBOR TO BE AVOIDED. ; It must be recognised, however, that error is inevitable in pursuing- this general •• policy, since it is extremely difficult to "- measure relative internal purchasing powI; ers, and sometimes, extremely difficult to ■; keep the exchange in conformity with •■ them. Thus being fo, care is required to !' ensure that the error shall be on the side -.; ■' of under—rather . than- over-valuation of * '■'■■ the pound.. ■ -.- "The long period of over-valuation pre1' '_ ceding our -departure from gold," the bank ;' - -continues, "played havoc with our inter- ;;-.-' national trade, and through it our internal • - economy. . Consequently, it is essential t ,r, that the damage then done should not be " ~ repeated, arid that Britain's export trades should be maintained on an equitable comI". petitive basis with those of other' cou'n- "' tries. ; v - "In • preparing for the world economic -■:" conference every precaution, should be ." ■■ taken to ensure the preservation to this " country of the benefits arising from a free ;; exchange, responsive to the development * ■■- of a free internal monetary policy.^Accordf -, ing to Press reports, the British delegates .;; on; the Preparatory Committee of the >' World Conference were emphatic in re- " fusal to contemplate a return to gold with- *;" out a prior rise in commodity values and ; ; the assured fulfilment of other conditions precedent to the successful working of a gold standard. ~ : VALUE OF THE POUND. "This attitude is cordially to be welcom--i, ed and supported; it should be rigidly ,1 maintained. With all recognition, of the *; need for; international action to overcome !;■ the world crisis, it utill remains that the '; brightest; hope for revival of prosperity in ''■ Britain and the world at large lies in our « complete freedom to pursue a monetary '. " policy of' our own devising, aimed' at a re"J covery of commodity values to a level at • ■ which business in general becomes profit- • able once again. ; , "Meanswhile it is desirable for the people ;;■ of this country to pay more and more at- • tention to the course of sterling commod- \" ity values, and to be undisturbed in the

face of exchange movements even -when • they involve further external depreciation -S. of the pound. The value of the poutad in terms of gold is far less important than its -value.in terms of goods. '. "Happily, mankind is coming to realise. though only slowly, that exchange stabx" ility. is riot enough, but that to subserve economic welfare a currency must divest : itself of the extreme variability in com- .-'-' modity -walue which has proved the source ; of most <>f our troubles in the years just ■ past.!'