STABLE CURRENCIES

Evening Post, Volume CXXVI, Issue 102, 27 October 1938, Page 12

STABLE CURRENCIES

AN URGENT NEED

OBSTACLES TO TRADE

"Evening Post," October 27,

Special attention is given by the Guaranty Trust Company of: New York to the question of exchange stabilisation. In this bank's latest survey of economics and finance, emphasis is laid on the urgency of the solution of this .- problem. The general preference shown at the moment for American dollars as against sterling gives point to - the comments of the trust. It is' shown how stabilisation would promote general economic recovery and remove some of the sources of Ul feeling among tne nations. Reference is made to tne newly-appointed Monetary Policy and Credit committee of the International Chamber of Commerce, In announcing this appointment, the chamber stressed once more its oftenrepeated belief in the importance of currency staoility and its endorsement of the general principles enunciated in the tripartite declaration of September, 19ist>, which is now adhered to by six nations. It is encouraging to the Guaranty Trust to find that constructive thought is again being given to the question of currency stabilisation. ■ The -hope is expressed that mature consideration of the fundamental problem that must be dealt with in any" successful programme will tend to hasten the reestablishment of a satisfactory international financial structure that, can be maintained over a long period. "The fact, however, that armament races interfere with the balancing of Budgets and the realisation that currency stability could not be maintained in the event of large-scale warfare," remarks the trust, "make the outlook for any .sort of stabilisation plan dependent on the prospect of world peace. . \ A SOURCE OF DANGER. "Currency instability entails a constant danger of . competitive : depreciation.- This danger arises from the general belief that a cheapening of one nation's currency in terms of another gives the producers in that nation a competitive advantage in costs in terms of foreign currencies against producers abroad. At a time of currency instability and of widespread unemployment, there is a continual temptation for each nation to endeavour to stimulate its export industries by this means. The gains that may be derived from such policies are of the temporary arid unsubstantial sort that are produced by any other sort of inflation, and it is often difficult in practice to show that even a transitory advantage has actually been realised. Nevertheless, there is a very real danger that a world-wide condition of monetary instability may develop into a 'currency war,' with economic chaos as the ultimate outcome. DIFFICULTIES INVOLVED. "The obstacles in the way of stabilisation at present are admittedly serious. The artificial restrictiens that have been erected against tho^free movement of goods, services, and capital are difficult to remove because they are primarily effects rather than causes. Most of the countries of the world are off the gold standard, and ■ their' currencies have become fiat money tp ; .all intents and purposes. Countries that are in this position would benefit by an extension, of the tripartite agreement, which aims at de facto stabilisation by ; holding fluctuations in exchange rates within certain limits. ' • • "Finally^ it would appear that any feasible; stabilisation agreement must take- into account the likelihood; of a substantial redistribution of the world s gold supply. The abnormal conditions of the war and post-war years, have resulted1 in one-sided movements of unprecedented magnitude , and duration, with the consequence that a few countries, arid particularly the United States, hold a disproportionate share iof the world's stopk of money gold, while some other countries are almost stripped of their reserves. One of the principal financial- problems facing the world for Jsbme time to- come will be nowto effect a sounder, distribution of gold without causing unduly severe repercussions on credit, prices, and trade. OUTLOqk UNCERTAIN. ■ "The outlook for stabilisation in the near future is very uncertain," remarks the trust. "Many serious obstacles still exist, not the least of which is .the. persistent reluctance of the leading commercial nations to face the facts of the situation and to'make the concessions that are necessary if success is to be achieved. It may be too early to re-establish the gold standard, but it is certainly" not too early to begin taking .the intermediate steps, ultimately leading to this goal.> .. . " "In the meantime, it may be wise to extend the' tripartite agreement. Such an extension should contain reciprocal definitions of parities and an agreement to.hold exchange variations.within certain limits, and it; should .run for a definite-period of sufficient length to permit commercial operations without fear of serious Ibjss through exchange depreciation." ~....;