GOLD STANDARD

Greymouth Evening Star, 1 May 1925, Page 3

GOLD STANDARD

NEW BILL’S PROVISIONS. (Australian and N.Z. Cable Association.) LONDON, April 29. The Gold Standard Bill repeals the subsection of the previous Act under which the holder of a currency note is entitled to obtain gold payment at face value. (.It also repeals the regulations under which any person is entitled to have gold bullion minted, but it makes an exception in the case of the Bank of England. Nevertheless, it enforces on the Bank of England the responsibility of redeeming legal tender on request in the form of bars of gold bullion approximately up to four hundred ounces. Finally, the Bill empowers the Treasury, on any conditions it thinks fit, to raise any money necessary to exchange Operations, provided that such loans or credits are redeemable within two years. ' PRICE OF GOLD. LONDON, April 29. The price of gold is now 84s llgd per ounce. This is equivalent to 77s which will be the Bank of England’s statutory selling price under the Gold Standard Bill. . AUSTRALIAN SATISFACTION. SYDNEY, April au. Bankers and business men generally express satisfaction at the return to the gold standard. '/ Mr Bruce, the Prime Minister, has requested the Associated Banks to use as little gold as possible, and to continue business with paper currency. This is a request in which the bankers concur. It is considered likely there will be a temporary demand for gold currency, chiefly by people who want again to experience the novelty of handling sovereigns, buT fTie great bulk of business will continue to be done on a paper basis. WHERE DOMINION BENEFITS. ' SIR JOSEPH WARD’S VIEW. (Special to “Star.”) INVERCARGILL, April 30. At the opening of the Ohai Railway Board’s new line, at Ohai, to-day, Sir Joseph Ward, who was one of the speakers, made some interesting references to the British Government’s decision to revert to the gold standard basis. “Possibly, you may not realise," he said, “the effect of the cable message published, in the papers this morning, relating to ’Tile action of the Chancellor of the Exchequer in Britain, having brought into operation once more, the gold standard, which has been suspended since 1914, when that abominable and uncalled for war went on .for so long. The introduction of a gold standard, not only in the Mother Country, but in all important parts of the Empire, will mean that people in the Dominion get increased value for their grain, wool, and stock, as the result of a reduction in the expensive, rates of exchange, which have been in operation for some years. I hope that as tiie - result of this, action, we will not have sovereigns again in circulation in the ordinary way, but if we can get a large number of millions sterling sent from this country, and owners can get their money back without being murdered by high rates of exchange, we will all get better returns. Not oniyTs this an epoch-making day, so far ’ as the district is concerned in the opening of the railway in your district, but it is an epoclUmaking one all over the world, because we are to get a big reduction in our rates of exchange/' EXPERT’S EXPLANATION. The best complete exposition we have yet seen of the case for restoring the gold standard is contained in the March number of the “Round Table” (wrote the City Editor of “The Times” early in March). The reasons that compelled the world to adopt the gold standard, how it differs from the present currency system of this country, and the probable results of returning to a free gold market are explained with admirable celarness. The writer, while not blind to the theoretical imperfections of the gold standard, is a strong advocate of the policy of returning to a free gold market at the earliest practicable moment, .for he says ♦ As these lines are written, the paper pound has risen in value to 4.79J>c., whereas the gold pound is equal to 4.86 2-3 c. The British currency is therefore within 1.47 per cent, of its gold value. This being so, there can be hardly any question but that before long the British authorities will attempt once more to make our currency convertible into gold and London a free yold market. Whatever may be the risks inherent in this policy the influences, psychological and other, compelling them to attempt it, as soon as the conditions seem favourable, are too strong to be withstood. The writer explains that the object of official monetary policy in the last few years has been “so to ‘manage’our supply of credit and currency as to maintain the greatest stability of prices without prejudicing our return ultimately to the gold par.” In this the Bank of England and the Treasury, as he says, liave had a considerable measure of success, the level of prices having been more stable in this country during the last three years than in America, where prices have throughout remained gold prices. It may be asked: Why should a system which has worked so well and brought the currency almost up to gold parity be dropped? The writer answers this question at length. He explains that while prices have been kept remarkably stable for the past two or three years, those years have covered a continuous period of depression. There is always, .he proceeds, a tendency for credit either to expand too much or to contract too much, and a middle course is difficult to find. Under a gold standard, and with gold stable in value, the landmarks are clear: — It is when credit is expanding, prices rising and prosperity growing that the task of credit and currency control under an inconvertible note issue becomes serious and difficult. While we have been fortunate to have had sound financial guidance during the last few years, we do not regard that experience as an adequate test of a “managed” currency. This is the main answer to the question. There are, however, other objections to an inconvertible currency to which the writer draws attention. A managed currency would put in the hands of politicians a weapon of a particularly formidable kind. Further, stability of exchange is an essential monetary condition for a great international trading and lending country like Great Britain. Therefore, concludes the writer, in the ‘/Round Table,” it is not practical politics seriously to propose to abandon gold. The gold standard, it may be owing to lucky circumstances, worked

well before the war. It will have to show itself far less beneficial as a means of uniting the world in the bonds of one uniform standard' of value than it has hitherto before its abandonment will be seriously contemplated. No doubt from this point of view Mr Keynes himself, as Mr McKenna does, would (favour the adoption of the gold standard by this country as soon as conditions seem favourable. Naturally, the contributor to the “Round Table” deals‘-at length with the future of gold. The value of gold, like that of every other commodity, depends upon its supply and the de ; mand for it. If gold were produced as rapidly as German paper marks wtfre manufactured during the inflation period, * the rise in gold prices would be as rapid as was the advance in German paper mark prices. Therefore, the future value of gold —whether it is likely to be stable or unstable —is the most important element, 1 the writer states, in the whole problem of the gold standard. ’■ ,'i This thoughtful article in its conclusion contains the following striking passages:— . If we really believe that the gold standard is worth some sacrifices, we should not hesitate too long. The whole world believes we intend to return to par. If we wait too long, psychological influences will turn against us; we may miss the moment, and it may be many months bdfore it returns. . . • There is no necessity for the Government and the Bank of England to announce their policy to-day or to-morrow. But there is a necessity that they should do so a good many months in advance of December 31, - 1985, when the present Act regulating the export of gold expires. And it would seem advisable that, when they make such an announcement, it should be of a quite definite character.. If aigairs in the United States do not develop very unfavourably, it is to be presumed that the plunge will be taken and the policy of a free gold market adopted. If so, our authorities must naturally be prepared to take all the necessary measures- here and by a firm mon-, etary policy to keep fundamental conditions in respect to prices and interest rates here favourable for the last step. The ordinary citizen will not lie likely to notice much difference after the return to a free gold market. He will not see gold in circulation, and measures will probably be taken limiting the power to mint gold into sovereigns to the Bank of England. But it is no good shutting our eyes to the fact that a higher Bank rate than we have at present may be required, and that we may not escape temporarily greater xuetuations in prices than we have suffered recently. Nevertheless, even if we have a “mauvis quait d’heure’ to go through, we regard the advantages of the gold standard for our industry and trade as far mg a temporary disturbance of interest rates. We depend on the prosperity of world trade, and world trade would be immensely benefited if we could return to something like the monetary conditions of 1914. These statements, convincing in our judgment, are clearly the work of a well-informed writer. MR McKENNA ON GOLD. In an address on the gold standard to, the Commercial Committee of the House of Commons, Mr McKenna dealt specifically with that aspect of its restoration which is of most interest to the business community.. He had been asked to express his opinion as to the significance that the restoration would have for traders,' and he expressed the definite belief that its permanent effects would be beneficial to them because it might lead to a little gold inflation. That was the gist ot his speech. His description of the Bank of England’s policy was correct — namely, to effect a steady appreciation of sterling with a view-to attaining parity with the dollar and the restoration of the gold standard, this being the policy laid down by the Cunliffe Committee and accepted by every Government since. This fact must be clearly understood, because, while from time to time suggestions are made .that we should adopt a “managed” currency as a permanent standard, opinion in the mass is opposed to such an experiment. Mr McKenna, who has always shown a lively appreciation of the theoretical advantages of a managed currency, admitted last week that the “super-human wisdom which so delicate a handling of the machine (a managed currency) would need is, I am afraid, only to be found in theory.” In other words, Mr McKenna also recognises that a permanently managed currency is not practical politics. Other objections to a managed currency were pointed out by Mr McKenna. As everybody knows, a steadily appreciating' exchange checks exports, while a steadily depreciating currency stimulates'them. With prices and exchange at a given level our competitive power may be satisfactory, but a. rise in exchange may destroy it temporarily. Under the gold standard, Mr McKenna explained, appreciation in exchange will be possible only within the limits of the gold points, and our export trade will accordingly benefit from a relative stability of exchange that cannot be obtained under

a managed system which aims ‘at stability of prices regardless of the effects on exchange. Thus, there would be only one fluctuating factor in trade between gold standard countries — namely, commodity prices. Mr McKenna showed that under a . gold standard the volume of credit ;s necesasrily regulated by the supply of gold, subject to changes in banking practice, which constantly tend \to economise the use of gold. In this country the use of credit instruments has been so developed that the proportion of gold that it is necessary foi the banks to keep is much smaller than it used to be and much lower than r is i ncountries with less developed banking systems. If the world’s dentil for gold were.in excess .of the oi’.uJy there‘would be a drain from ins country which we shold be able to check only by restricting crept. s*id hfr McKenna, while if there v an excess di supply there would be an influx of gold into this country whicli would expand our credit. Although the speaker did not allude to the factors which would cause this country either to export or import gold, it must be borne in mind that gold would tend to leave this country (except during the periods of seasonal pressure) on ’balance only if our prices were too high —in other words, when people found it cheaper to take our gold and spend it in lower-price countries than to' buy our goods.. Similarly, gold would tend to flow in when the trade balance was strongly in our favour' and our prices were low. An influx of gold, therefore, would tend to cause usrto lend more! abroad eventually, since if we allowed it to accumulate here too much, our prices would lose stability and we should run the ■ same risk oj inflation as America does with' her large accumulation of gold. PERMANENT BENEFITS. . iu . On the question as to what is likely to be the future value of gold, Mr -McKenna gave an opinion which should powerfully impress traders with the advantages. of the return of gold. At its present value he believes that the supply of gold is more than sufficient , to meet the world’s demand, and that consequently, under a gold standard, we should pass into a period of slowly rising prices, more active trade, and increased employment. He expects the restoration of the gold standard to be ioliowed by an influx of gold into this country. This, of course, could not take place, unless our price level was correct —i.e., low enough to make it profitable for foreigners to buy our goods instead of those of other countries. Wo believe that Mr McKenna is right in this supposition. The immediate effects of restoration may, as he. says, be different, but when the necessary adjustments have been made the permanent influence of a reversion to the gold standard should be to restore our competitive power commercially and financially. That, in our opinion, is the whole case for the restoration of the gold standard. The immediate effects may possibly be unpleasant, but it will tend to compel those readjustments that are necessary to restore our competitive power, which otherwise might never be recovered. In any case, it would save this country from the serious handicap of a fluctuating currency, which, if continued for a long period, could not fail to destroy the financial power that in the past lias done so much to build up our foreign trade. 1