THE END OF GOLD

Evening Post, Volume CXVII, Issue 75, 29 March 1934, Page 9

THE END OF GOLD

FOR USE AS CURRENCY

THE HOARDING PARADOX

BELIEF AND EESEEVES

One of the few questions on which economists and bankers are in almost complete agreement is the deslrabiltiy of universal and permanent abandonment of the -use of gold as currency or as a store of value for private accumulation," says the "Midland Bank Review." The Gold Delegation of the League of Nations, among, other authoritative bodies, laid emphasis upon the waste incurred in such practices, and the advantages of- concentration of' the ■world's gold supply in the hands of the monetary authorities of countries on the gold standard. The widespread adoption of the gold bullion and gold exchange standards in the post-war years and the withdrawal, of gold from circulation were the natural outcome of the recognition of this general principle. ■ The sovereign and half-sovereign ■were in general use throughout England right up to 1914, but the substitution of paper as a war-time measure became a permanent change, On the recommendation of a committee of experts, ■who thus saw the opportunity of transforming an emergency sacrifice into a wise reform of habit,'' adds the '' Mid-t land Bank Review." The paper currency became in effect irredeemable for internal purposes, the Bank of England "being required to sell gold for notes only in the form of bullion in quantities of 400 fine ounces or more, so that £1700 became the approximate minimum quantity of notes of ■which redemption in gold could be claimed on demand. NO BRITISH HOARDING. The result was that the country's goIH Teserves were permanently concentrated in the Bank of England. Gold •went out of circulation entirely, and oily small quantities' were left, as carious or archaic personal reserves, in private hands. A further step in the same direction was taken in 1925, when* by the Currency and Bank Notes Act of that year gold exceeding £10,000 in value held by "any person in the United Kingdom," unless held for industrial purposes or for immediate ex,port, -was .made subject to surrender to the Bank of England, coin at its nominal value and bullion at the statutory price of: 77s 9d per standard ounce, that is, roughly, Sos per fine ounce. The fact that the bank has never seen fit to exercise this'right is evidence of the almost total absence of gold hoarding in this country by British nationals. But the law reinforced the changes by rendering definitely illegal and subject to penalties the hoarding of gold by the British public in any but negligible quantities. Supposed safety of capital in gold holdings was the objective of the . American, public, and, denied facilities for achieving it within their own'boundaries, they -were driven to seek it elsewhere,* adds the Bank 'Review, referring to the hoarding of gold by American citizens. Dollars were sold in exchange for sterling, and thjb sterling used to buy gold availably in the London market. No figures are available of the extent of American private gold holdings in Britain, but it is not inconceivable that the sterling total may run into, eight figures. Much more curious than this American hoarding is the fact that people even in countries still on the gold standard have accumulated gold stocks in London, probably far surpassing the. holdings of United States citizens. Here the guiding considerations are in some ways different. The desire to hold gold is based upon anxiety to safeguard resources in a world where no currency is regarded as secure against depreciation: EVEN IN FRANCE. . Hence we find that even iii Prance, the most tenacious upholder of the gold standard, a considerable amount of internal hoarding has taken place. This, however, is perhaps a relatively' small movement so far as gold itself is concerned, for gold held in house in. anything but minor quantities is not calcu-> lated to induce peaceful slumber. Accordingly the larger transactions in gold hoarding by nationals of gold sisuidard countries, have taken the form mainly, of the purchase of gold in London and its deposit in safe custody here. This is partly a matter of convenience, reinforced by a feeling of complete assurance that such holdings ~wj.Hl always l>e readily removable, or saleable at the market price, at the will of the owner. "Here, then, is a paradox to which only Gilbert could have done justice: England off the gold standard; Englishmen deprived of the right, to hold gold in any but negligible amounts; newlymined gold coming to London, as the dominant free market, for sale; foreigners "buying up gold thus available and depositing it for safe custody ■where it is bought—in a country off gold," concludes the "Bank Review." "The paradox is made possible by the fact that no restrictions are imposed upon the movement of gold into or out of the country, and by the limitation of the Bank of England's right of seizure to gold held by 'any person in the United Kingdom'—the term 'person.' incidentally doubtless includes corporate bodies. AMERICA'S TIGHT. "But now we find another paradox. On one side of the Atlantic we see the United States Government battling against the efforts of its citizens to hoard gold, and being circumvented by operations which it finds extremely difficult to check. On this side we.find complete indifference among the public to the supposed benefits of holding gold, and hence complete inaction of the authorities under a law designed to prevent such accumulations.. "Indeed, hardly had Great Britain left the gold standard than'the public, so-far from attempting to hoard gold, began to follow the opposite course. The ""^.untary surrender of odd outstanding gold coins, old gold and jewellery, has yielded probably tens of millions sterling to the holders, and the Chancellor of the Exchequer recently confirmed general impressions by stating that he had no information which might lead him to believe that'the people were hoarding gold to any substantial extent. "In the truest sense the stability of a currency depends far more on confidence than on any practically available metallic backing. If confidence is felt in the currency—as events here and in India show—the public will be quite indifferent to their loss^of fixed and practical relationship with gold. "If confidence is lost, then no exhibition of huge quantities of gold reserves, and no amount of legislation against gold hoarding, can re-establish it. The continuous virtue ft a currency lies-, not in jts metallic support, however imposing the figures may inej but in the good faith of the people and their Government and the solidity of its physical and personal resources."