BARRIERS MUST FALL

Evening Post, Volume CXV, Issue 102, 3 May 1933, Page 9

BARRIERS MUST FALL

WILSON'S VIEW GAINING

FREEDOM OF EXCHANGE

/'President Wilson is coming into his own again!" 1 The remark fell the other da,y from the lips of an eminent statesman in Britain. Asked for au explanation, he ; directed attention to the third of th.o famous fourteen points of President Wilson which bocame the foundation of the settlement in Europe after the war. This demands tho abolition of economic barriers between nations, so that by tho unhindered flow of trade peace shall be securely maintained. This is exactly what the experts of tho world have been urging in tho last fifteen years. Tho principle was stressed, at,the confereneo at Genoa in 1922, and again in. 1927 at tho World Economic Conference.at Geneva, writes a'British . correspondent in the "New York Times." Tho Preparatory Commission of tho coming World .Economic and Monetary Conference met last year. It insisted that return to prosperity is possiblo only if national economic systems are brought into line. Thus, tho idea of tho late President has maintained its hold. In practice* however, while at' conference Ministers and experts were rondoring lip seryico to tho principle, no sooner were they back home than. they proceeded to some raising of tho Customs .barrier, or introduced other restrictions on! tho freedom of international trading. Tor this course wasdictated to them by a desiro to pro-, sorv'o the balance of national payments' and, to protect national industries against competition from outside. TURN TO TARIFFS. So tho danco went on merrily until tho present economic crisis began to sweep tho world. When this happened, at first pooplo thought to find salvation, not in tho application of the Wilsoniauprinciple but in further strengthening tariff walls and other restrictions. Of this trend Great Britain furnished ono of tho most glaring examples. Yet events are stronger than'men, and tho crisis marched on from stago, to stage, disproving the alleged wisdom of tho extremists of national .protection. Today, in London, thoughtful obscrvors admit that Wilson was right, and that there is no other way back to prosperity for all than to get rid of superfluous obstacles to tho freedom of commerce and of monetary exchanges. Preconceived notions arc suffering. Tor example, what remains 'of tho theory of Montagu Norman, governor of the Bank of England, as to tho " gold-exchango standard," which for years was imposed by tho Bank of England upon a confiding world until the structure of the credit thus created toppled. over, when tho pound sterling fell from its golden pedestal in ,1931? What remains of this theory which seemed to permit, and did permit for a time, increasing the volume of international credit without moving ■ at- all tho reserves of tho precious metal? The Bank of England just now has furnished tho proof that it holds no longer with that idea. Tor wo sco how in these last weeks its reserve of gold has mounted so that not only has the transfer of gold to tho United States mado in December for the payment of the war debt been marie good but the quantity of gold held is back again at tho old level. The rise in tho reserve is due to the operations of tho exchange equalisation fund, created in London to protect .the pound against an undesirablo rise infvaluo in terms of francs and dollars. PURCHASED. DOLLARS. With this end in view the fund has been obliged to buy of lato large quantities of dollars to prevent too swift a fall in- them. It has also bought francs. Though large, the fund is not unlimited, and the people who administer it saw the moment near when they would be obliged to' stop operations because of the complete exhaustion of liquid assets. To prevont this • they went to the Bank of England with the foreign currencies they had accumulated. • If .Itfr. Norman had not lost faith in the theory of tho "gold-exchange standard" it would have been easy for the Bank of England to create new amounts of credit abroad. But nothing of tho kind happened. The bank proceeded with commendable prudence to transform the dollars and the francs it had acquired into gold. Hence the Remarkable increase ■ in. its holdings of the metal. This means that in 1933 the Bank of England' is proceeding exactly in the manner for which it reproached the Bank of Franco a few years ago. p If this increase of gold, in the vaults of/the Bank of England," or earmarked for it abroad, goes on, it appears that a return of the British currency to stability expressed in terms of gold parity will be facilitated. This is not only because of the increase in. the gold cover for notes in circulation, but also for another curious reason. Tho Bank of England transforms the dollars and francs acquired from tho exchange/ equalisation fund into real gold. In fact, this transformation has to bo carried out by tho administration of the fund before the Bank is approached. The fund buys the gold in the open market, or by presenting tho foreign currencies it possesses. In any case, the price it pays for tho metal is anywhere at about 39 per cent, higher than tho old parity of the pound. But the Bank, according to its statutes, still buys in for itself at that old parity. This means that the fund, or the British Treasury, and therefore the British taxpayer, in the final reckoning, stands to lose a large sum if theso transactions are continued for some time. Such a .state of affairs, with other factors, must bring stabilisation nearer, because that would permit, revaluation of the gold held in the Bank of England.