TRADE AND FINANCE

Evening Post, Volume CXV, Issue 94, 22 April 1933, Page 14

TRADE AND FINANCE

PRODUCE & MARKET REPORTS FROM DAY TO DAY

GOLD STANDARD

XF AMERICA GOES OFF-

"ANOTHER NAIL IN THE COFFIN "

"Evening Post," April 22. ■ When the President of the United States on Wednesday of this -week announced the departure o£ his nation from the, gold standard the decision was received in all other countries with far greater astonishment than the famous "first shot that was heard around the world." It came with the force of a staggering and stupifying blow. But was' it wholly unexpected in that arcanum of finance, the City of London? Did it take the high priests of finance officiating there quite with surprise? No doubt many individual bankers of high standing in London and on the ' Continent were shocked by the news; but if the departure of America from gold was unexpected it certainly was not » thought an. impossibility by the Midland Bank, In the March review of that institution, just received, it will be found that the possibility of such a departure, was not an unthinkable decision. The review observed that "A question often raised in these days when nothing surprises is whether, the United States is likely to be forced off the gold standard, - and if so what the consequences will be. The second part of the question .is hypothetical and so elusive that we do not propose to consider it here. The first is more capable of examination. ABSURa AT FIRST GLANCE. "At first sight the possibility that, a country holding on all accounts roughly 4,500,000,000 dollars of gold—more than onethird of the world's monetary. i stocks —might be forced to abandon gold; as its standard seems absurd. But the prospect is not regarded as fanciful in times like these of unexpected and, cataclysmic happenings, and the possibility, however remote, has therefore some serious relevance. "In recent experience we may notice two distinct ways, in which . departure ■ from the gold standard has been brought about. On the -one hand, exchange, depreciation, leading to heavy losses of gold, has been the result of over-bearing sales funds held within the country by foreigners, these Bales having been prompted' by loss of faith among foreign* creditors in the prospective liquidity and exchange value of the country's monetary unit. This was'the type of departure from gold enforced upon Great Britain. On the other hand, there is the type represented by South Africa, whose departure was brought about by a rush for foreign currencies on the part of the country's own nationals, prompted again by the belief that tlft currency would eventually depreciate in terms of other units. "A departure from gold' may, then, be the result of lack of confidence, either within or outside the country, in the prospect for maintaining indefinitely the exchange, value of its currency., Applying these lessons to the United States, is it possible or likely that lack of confidence in the American dollar will go so far, on one ride or the other, as to drive her off gold? ■- . "GORGED WITH GOLD." After analysing 'the possibilities of a flight from the dollar, the "Midland Eeview" remarks that experience has shown that when unbridled inflation is feared— a phendmenon unknown except as a direct result of war or revolution—the inhabi-, tants of the country concerned endeavour ' to acquire foreign currencies in whose future they feel more confidence. '" "There is no ground whatsoever for thinking that America will set a new precedent by embarking on unbridled inflation in times of peace, but even if numerous Americans thought it probable they would be faced with the question: What currencies, if any, are better than the dollar? AVould they invest' heavily in ■ ■ sterling, the future of which is impossible • to foresee; would they place money in France, already gorged with gold and foreign capital, and likely to be forcecj. throtigh their, own actions, into almost complete isolation on the gold standard? It is difficult to see any probability of a flight from- the dollar on an enormous scale in the sense described. If it took place the participants would merely repeat the experience of the Gadarene swine. ... LOSS OF CONFIDENCE. "There has been, in a word, a strong • movement of conversion from credit to currency. Both, however, are paper promises, and if panic were to spread strongly it is possible that a second movement might take place away from paper .claims towards gold, in the form cither jof. coin or of gold' certificates, which am simply circulating warehouse -receipts for,. gold coin. ..." Inquiries into different possibilities lead the "Beview" td the conclusion that "only'a terrific loss of confidence, far surpassing anything yet experienced, could ■conceivably drive America off gold. It may be taken for granted, moreover, that every effort would be made to preserve the connection. America and France between them hold nearly two-thirds of all 1 the monetary gold in the world; a few smaller gold standard countries have a large part of the remainder. ! "The departure of cither America or France from the gold standard would so gravely undermine, if not finally shatter, the world's faith- in gold as a store of value—a faith which remains strong notwithstanding the events of ' recent years—that it could not be faced by any of the remaining gold standard countries except with the gravest misgivings." A DIFFICULT MANOEUVRE. Concluding, the "Eeview" points out that "devaluation of the dollar, regarded as a separate step undertaken by America alone, is extremely difficult .to bring about, while it would involve grave risks for but slight benefits over and above .those obtainable by straightforward ' monetary management. "Accordingly the results of the step might prove to be disastrous. In any event, .devaluation would have this in common with-a departure from gold: it would strike a heaVy blow at the gold standard itself, for the whole modus operandi of that standard is based upon the fixed and immutable gold content of the currency unit, and the only recognised excuse for a change' is inability to return to gold at the old parity after a prolonged period of separation from gold. "It is hardly likely that in the face of all the risks America, for the sake of small and problematical benefits, will be prepared to take action which might drive another nail in the coffin of the gold standard., "America, notwithstanding the relief accorded, to her by France and on a smaller scale in the last few weeks by our own exchange equalisation account, still has a vested interest in the gold standard larger than that of any other country."