WELLINGTON NEWS

Hokitika Guardian, 4 October 1929, Page 2

WELLINGTON NEWS

SCRAMBLE FOR GOLD.

"j . ’ (Special Correspondent.)

WELLINGTON, October 1. Although gold is received in London in quantity practically every week from South Africa, there has been an enormous efflux* of gold from the great metropolis. France, Germany, and the. United States have been making raids on the reserve of the Bank of England during, the past three months, ‘France showing the most -vqracious appetite., It was stated in the cable messages recently that, in six weeks up to August Ist, France withdrew £12,000,000* in gold from. London aiid has withdrawn smaller amounts since. It is interest l V ing to examine how France acquired this power to' withdraw gold, seeing ' that her export trade-is comparatively small, and why she has found it necessary or desirable to withdraw the metal seeing that international transactions are settled in franc notes, even cheques "' are issued to a limited extent., France' has been able to withdraw gold from London because she has built up very large credits in London and' New York partly through the large annual income derived" from tourists, largely from reparations already collected from Germany, and largely because no effort was made to pay war debts. She is thus able to withdraw credits both 'from London and New York and why she did not draw gold from the - United States where it is held in excess of monetary requirements, nnd why she should make a raid on London are interesting questions. It is true •> France is now in a strong financial position and she has been using her i; financial strength not to promote commerce and trade but to promote her political interests. It was early in August the conference met at The Hague and no doubt ; hoped to profit at the expense of Briv tain. That is why the £12,000,000 was ■;: ■ drawn in July. Recently she has again H been drawing gold from London, and ■ now it is "'probable that she aims to have the headquarters of the International Settlement Bank located .in V:J Raris. But she is not likely to meet; with success if that is her desire, for - jr.- the logical and only 'locality for the y .head office of that bank; is the world’s, monetary centre —London. lor, notwithstanding all the vicissitudes, trials ■and tribulations of the post-war, pepod , London remained, the' financial centre of the commerciaFworld.' ;,. V To cheek 'thisScramble for gold the Bank of England has raised its discount • rate from 5$ per cent to 6F pej* oept: This movement has long been delayed and it has been puzzling to a few people. When the discount rate of the Federal Reserve Bank of New York wps raised from 5 per cent to 6 pej- cent on August 8 it was thought that an advance iii; the Bank of England rate was inevitable, but there was no move .in that direction.*and the official explanation was that the rise in New York was ’> a domestic affair'and did not necessarily connote an advance in London. The real reason why the Bank of England * did ; not respond to the New ‘ York gesture, was that the Bank had arranged with the Federal Reserve authorities 'for a credit of 250,000,000 ' dollars (£50,000,000). The continued efflux of the metal forced the ■bank t 6 raise its disequnt rate, for the position was becoming alarming. On Wednesday, September 25th, when the weekly settlement of the Bank was made up the gold reserve in the issue departi ment had fallen to > just under \ £132,000.000, or over £lß,ooo,ooo.below the minimum recommended by the Uunliffe Commission. The above remarks briefly adumbrate a ;.trthe cause that has forced up the Bank icv ,gof- England discount rate, and it is necsdcJessary p.ow to consider the effects, for i : befnch a movement is far-reaching; it OS nhas already been reflected in the Scandinavian countries of Norway, Sweden, i*. \' T and Denmark and it is reflected in New i . Zealand, for on Friday last the Associated Banks promptly altered their exchange rates on London, giving a de- .)«*. cided ■ advantage to the exporter. 'Hie man in the street* on seeing the an- ,-■ nouncement o'f the rise in bank rate said promptly and unconsciously that sv< money ;was dear. What is meant by -• dear? We seem to appreciate what is meant by.dear land better than we do i dear money. We say land is dear when we have to give more money for it, >: and we'regard it as cheap when we >■ have to give less money for it. i ■ - If we transport the matter and say that money was dear when we had to >/ give more of it for the land and cheap when we had to give less. Money is .r dear now and therefore the sellers must give jvst a little more wheat, .'!■* wool, meat, butter, cheese, hides, skins, i'-y tallow, copra and whatnot for a given sum of money; thus when money goes up commodities po down. It is a 'game of seesaw, for credit structure is ' hot stable, and particularly so now * when the world’s supply of monetary ' gold is not equal to requirements, and that is why economists tell us that' we

are face to face with falling prices. .Business men must realise that our in- '. come from our exports of primary pro--7 ducts will be less than in the past sea--7 son, therefore the spending power of the community will be less, that will cause a falling off in retail trade. The alert business man will act with prudence and caution and guard against a • crop of 'over-committals.