The Guardian And ‘'Evening Star, with which is incorporated the Vest . Coast Times WEDNESDAY, OCTOBER 2, 1929. THE GOLD PROBLEM Something of a sensation has been

Hokitika Guardian, 2 October 1929, Page 4

The Guardian And ‘'Evening Star, with which is incorporated the Vest . Coast Times WEDNESDAY, OCTOBER 2, 1929. THE GOLD PROBLEM Something o f a sensation has been

created in the Money Market by the decision of .the Bank of England to raise its, discount rate from 5-j- to G* per cent. 'J his step, considers. rJi'nbrtfiern writer, cannot be described as unexpected, for financial conditions have heen pointing in this direction for some past. As a result of the sudden collapse of a speculative boom in the Lnited States five or six weeks ago ,the New York Federal Iteserve Bank rate rose from 5 to 6 per cent, and the financial pressure there naturally re-acted on London. Since then heavy shipments of gold from London to America, France and GernVany have brugnt down the Bank’s holdings of gold to a point considerably below the minimum level of £150,000,006 recommended by the Cunliffe Commission. But no doubt the additional strain thrown on the Money Market by the Hatry failure lias provided the final argument in favour of raising the Bank rate, and to-dav the rate stands at the highest figure that it has attained for the past eight years. It must be remembered that in attempting to regulate discount and interest rates in the Money Market by varying its own rate of discount the Bank of England has to provide against demands for ' gold from two distinct sources. More gold may he required to supply a sound basis for the extension of credit and the enlargement of the currency at nome, and at the same time more gold may be needed to balance our trade accounts and .satisfy foreign creditors who- have money on call in London. For, qui f e apart from the natural outward drift of gold to liquidate an adverse balance of trade, London has to pay the penalty for its reputation as the world’s one free gold market. Five weeks ago France and Germany togellier drew £1.700.(T0 in gold from London in 24 hours, and tin's at a time when the Bank’s reserve of cold was abnormally low. Such operations neee&sarilv moan financial embarrassment to the Money Market, and the Bank of England.- which can usually control the situation bv modifying its discount rn+e. lias raised it to make the Money Market a more attractive centre for the investment of foreign monev. and thus to chock the outflow of gold. Tt is "(morally recognised that the financial power of the Bank' of En r dnml and the prestige of London as the world’s financial centre are involved in this mainlonanro of a free market for gold. But such privileges have their disadvantages and many leading financial authorities at Home are now expressing grave doubts as to the wisdom of maintaining a- system which mav he so easily dot mured, and may in that case react so injur-

iously upon British finance, commerce and industry. 'J lie “Financial Times” lately .quoted a protest from a London banking firm against the policy of our commercial rivals—“ America neutralising gold and France and Germany sucking it in and retaining it with an apparent disregaid lor business interest.” A few weeks ago Professor J. H. Jones, of Leeds University, discussed the financial situation in the “Observer,” and predicted that the' Bank would speedily be forced .either to raise its discount rate or to let its gold reserve fall below the margin of safety. 'l’lie rise in the Bank rate, said Professor Jones, “would intensify the difficulties of British industry” by limiting credit, while it would no: actually prevent the export of gold or* regulate the level of prices. Under the circumstances the financial experts appear to see the best chance for a satisfactory adjustment in co-operation netwoen the great banks in the leading financial centres, and even in London the arguments for an international bank on the lines suggested by the Young Cbm mission are beginning to find favour, in the hope of ensuring a more equi. able distribution and circulation of gold. As the “Financial Times” puts it, “the whole combination of events stresses once more the vital need for that co-operation of central banks which the Young Report described as essential to the stability of tlie world’s credit structure.”