THE SOVEREIGN.

Hawke's Bay Tribune, Volume X, Issue 20, 7 January 1920, Page 3

THE SOVEREIGN.

ALLEGED FALL IN VALUE. ! CURRENCY AND EXCHANGE. i | A writer in an Australian pa;>er t just to band gives rather a concise i and yet complete summary of the | currency and exchange question. ; While the article covers the same ground as many previous articles published in the “Tribune,” it nevertheless contains some interesting details which justify its publication iu those columnsThe time was when currency and such questions were left to bankers. I- To-day they press themselves even into the family circle. The housewife whose tea, for instance, costs, say, 60 per cent, or so more than formerly, finds j little satisfaction in learning that an l adverse Indian exchange mainly accounts for the rise in priceThe'explanation that is is due to the hahince of trade having been in favour ... India for several years, in the past year alone to the extent of 84 crores of rupee.' (a cron- is ten million rupees), -ul! g’ve no comfort. It bewilders her i tv Ixr told that a pound will now buy I' osilv about 10 instead of 15 rupees, as was the cis• up to August, 1917. “Is not a sovereign worth as much as ever " rhe inquires. Little wonder if ! s»-e i- assorted that n sovereign has i > iHen from grace, for does not a writer j in the “Daily Chronicle” sympathise j with the ''sick sovereign” “not being I worth half what I was.” Even so I eminent a financial authority as the London “Economist,” in commenting lon the adverse New York exchange, i gravely declares that “the sovereign is I worth about 17/3,*’ and similar stateI ments are frequently met with in finan- ! cial cohtmns-

NO GOLD DEPRECIATION. The fact i« the sovereign has not depreciated in terms of the currency of other countries, and, for example, will buy as many gold dollars in New York a sever. The Mint par, as it is termed, !of the sovereign is 4.8665d01. In a gold 1 dollar there are 23.22 grains of pure | gold, and in a sovereign 113.0016 I grains. Now, the reason that a sove- ! reign is worth 4.8665d01. is that it contains 4.8665 times as much pure gold I as the dollar-

When it is loosely that a sovc--1 reign is worth in New York 16;- or j 17/-, ns the case may bo, it is really intended to say the £1 payable in London will bring the equivalent of that amount ill New York. The reason of the depreciation is that the pound is not payable in London iu gold, but in paper. Gold is not procurable in the ordinary way, and it is at a premium in comparison with notes. The Mint coins gold bullion at the rate of £3 17/TCH per ounce, but as the cables advise it has been selling in London at £5 11/3 per ounce, this is the paper price- _ The position is similar to what existed during the Napoleonic Wars, and which was the subject of inquiry in 1810 by a Committee of the House of Commons, who issued its finds in the Bullion Report. One of the conclusions ej-rived at was that the- difference between the market price .of gold and the mint price exactly measured the depreciation of the currency, then chiefly Bank of England notes. At present, in addition to bank notes, there are in circulation the British Treasury Currency Notes, which amount to aliout £340,000.000. and the conclusion arrived at in 1810 bolds goods to-day. The only difference is in the immensity of the present currency, as compared with the comparatively small amount at tho former period. j THE LIGHT POUNDII Instead of exchange, London on New York, being iu the viciity of 1.86d01. to the pound, the uilue of the pound ) has lately fallen as low as 3.69Jd01. Various theories are projaiunded in explanation of the jxisition. During the war, exchange was what was called 1 “pegged” by tho British Government. Under this arrangement, tho price ol pounds in New York was maintained on an equality with tho pt-ice of dollars in London, and the rate was kept at 4.76jd01. to the pound. The vast exports, chiefly munitions of war. kept the balance against the British Government, and it was able to keep the exchange stable only by borrowing to cover the balance left short by the excess of imports over exports. This was after gold to the extent of about £250,000,000 sterling had been exported- Before the war a very large amount was required to be remitted annually from the United States to cover the interest on the holdings of debentures and other stock in American ventures.

To cover the adverse balance as the war progressed, these stocks were transferred to the United States; further than this, the United States holds not only the bonds which represented the Jeans of that Government to the British Government, but also a very large proportion of the bonds which were issued to the public in the ordinary way by the British Government from time to time.

AMERICAN HOLDINGS. When figures become available, it will be found that these American holdings come to probably £3,000,000,000 sterling- The interest alone on this sum amounts to, say, £150.000,000 a year, and this has to be provided in New York. Added to this factor in throwing the exchanges against the United Kingdom is the continued adverse trade balance. For the first nine months of this year the imports into the United iKngdoni exceeded the exports by £527,000,000. and it was estimated that by tho elose of 1919 this amount would be increased to £700,000,000. Apart from the ordinary export and import of commodities, there is what is known as “invisible exports,” eon-

[ sbiiug, in the case of Great Britain, very largely of freights. This item, | which, in years gone by, formed so ! large a ;»>rtioii of hdr ihlWttWj is now i divided very largely with American and i Japanese owners- Allowing for £350,i (MX),(XX). the estimate of Sir Frederick Lewis, for tho year’s freight payable to ! Great Britain, there will still he at) ; adverse trade balance of about the same amount to l>e squared. In normal times a shortage of this kind is met either by shipment of gold or by long-term Imi'rowing. A sfflpm<*iit of gold is at present out of the question, and it remains to be seen in what way the shortage can be adjusted by borrowing in America. The funding of the deficit would tend to bring the exchanges towards ar: equilibrium. 1 RESPONSIBILITY’ OF THE UNITED STATES. It will have crossed the mind of the reader that the burdensome position of the United Kingdom is a legacy from the war for the “complete suppression of Prussian militarism and the triumph •if civilisation,’ ’as tho late Mr. Joseph H. Choate so aptly expressed it. Nothing would so promptly and effectually equalise the exchanges, and bring back tho pound to its true value as the assumption by the United States of her share of the total cost of achieving those measures to which Mr. Choate referred- Then, remote as the connection may- seem, would the housewife be.able to procure her tea at the old price. |