DIVIDED THEY FALL

Evening Post, Volume CXV, Issue 147, 24 June 1933, Page 9

DIVIDED THEY FALL

POUND AND DOLLAR

A FRANC-STERLING COMPACT

AMERICAN VIEW

French suspicion that the United States. Government, "wedded to inflation," will not accept any dollar stabilisation at present, recalls the fact that banking opinion in America is most anxious to keep inflation within bounds. There ia a big "moderate" group in banking and business of whom "Tho Chase Economic Bulletin" writes: "They sincerely believe that if

the now permissive currency and credit ] powers given to tho President aro used . iv great moderation, and if the programme of international co-operation is .simultaneously carried through, tho total effect on confidence and trade will bo good, and soundly based revival will conic." But is it practicable to start inflation and-yet cling to. moderation? To what extent is a policy of internal inflation consistent with external stabilisation? Tho author of the sentence quoted above, Dr. B. M. Anderson, of the Chase National Bank, without directly answering the first question, seeks to supply the right answer by pointing out that if President Roosevelt used to the full the powers granted him by Congress to reduce the gold content of the dollar, and to inject three billion dollars of now reserves (carrying multiple expansion of credit) into the heart' of banking, a disastrous flight from the dollar would bo inevitable. A POLITICAL WEAPON/ OR ? As to the second question, the answer depends on whether the policy of inflation by dollar-depreciation is 'only a political weapon to bring other depreciated currencies to a basis of international stabilisation, or whether tho United States Government is to join in a despairing contest of currency depreciation. The latter policy would present Mr. Roosevelt as a Samson without hair. Informed opinion in all countries, writes Dr. Anderson, recognises so acutely tho need for international co-operation regarding currencies that there is every ground to hope that it will be accomplished. The great countries of the world must come-back speedily to gold, and, above all, Britain and the Unite? States must come back speedily to gold. Otherwise, the world can easily drift into a hopeless competition race in depreciation of currencies, utterly wrecking foreign trade and demoralising internal life as well. Dr. Anderson hopes that the race in depreciation will be avoided, and that "the temporary abandonment of the gold standard by tho United States may be the prelude to the prompt rcestablishmcnt by international agreement of the gold standard in Britain, in the United States, and in other countries." Was it a permissible step for the United States Government to take the dollar off the gold standard "deliberately, for the purpose of strengthening its hand .in the international negotiations "? No, says Dr. Anderson." He would not sanction such a step; "the risks are too great." WAS ROOSEVELT FORCED? . Ho prefers to believe (but admits there aro doubts on tho point) that '' the, hand of the Administration was forced by Congress." . / Should President Roosevelt have resisted Congress? On this point Dr. Anderson says there aro three views: One, that he could and should; another, that he was powerless to resist Congress; and there is "an intermediate view that while the President could havo resisted, and would havo been sustained by ono of the Houses, it would have meant an open break between the President and Congress, which would have meant chaos in a critical situation, a chaos which would have wrecked the gold standard and everything else —that it was far better for the President to compromise with the Congress by accepting the permissive legislation than to havo this open break." Tho acceptance of permissive instead of mandatory legislation gives the President some chance (however small) of limiting tho inflation. Otherwise, he might have had a east-iron inflation thrust on him.

CAPACITY OP THE GOLD FRANC. There, is cabled talk of a European currency front, or an Anglo-French currency front, against tho depreciating dollar. On this point, Dr. Anderson writes that, after Britain went off gold, her "managed currency" became dependent on a gold dollar. "It was," he says, "possible for England to maintain a 'managed currency* so long as she had tho American dollar on a sound gold- basis to manage it with. But there is little confidence in informed circles, in England or anywhere else, in the ability of any country to 'manage' an irredeemable paper currency except by means of gold or gold exchange transactions. When the dollar became unstable, the possibility of a stable sterling grew very precarious." Would the gold franc bo as effective as the former gold dollar in enabling Britain to "manage" her currency. Dr. Anderson thinks not. "France, the Netherlands, and Switzerland combined could not be an adequate anchor —first, because if tho dollar should break very badly, there would be grave uncertainty as to their holding firm to gold; secondly, because in any case the ' volume .Qf transactions in these currencies, and their importance in the international picture, is too small." In short, sterling, when off gold, needs the gold dollar. "There could bo a broad and dependable sterling market only if there wore a broad and | dependable dollar market —unless Eng-' laud 'herself anchored to gold." j