IS GOLD REALLY IDLE?

Kaikoura Star, Volume LXIV, Issue 58, 27 July 1944, Page 4

IS GOLD REALLY IDLE?

A STUDY OF TREASURY FIGURES. A man can sit still and still be busy. A gun can be unused and still be useful. A dollar resting in a pocketbook is far from impotent. And so it is with that gold hoard—or most of it—which lies busily “idle” down at Fort Knox, Kentucky.

The major part of that gold pile of 21.3 billions of dollars (between twothirds and three-quarters of it), a study of Treasury figures indicates, is supporting America’s financial economy. And until the country changes the rules, which it can do again as it has done before, some 14 or 15 billion dollars of that gold hoard is figuratively busy shorting up the Nation’s monetary system.

While the Treasury doesn’t put it quite so bluntly, what its figures show is that at the moment only about seven billion dollars of that sum is not actually needed. However, with gold flowing from this country to other countries at the rate of one billion dollars a year, that figure of seven billion is more liable to decrease than increase in the immediate future.

Very roughly and quite unofficially, it is possible to estimate that the United States will have some billions to help reconstruct other nations’ currencies after the war if it wants to, bit not much more than 5,000,000,000 dollars.

The Treasury’s gold holdings may all look alike but they don’t all act alike or work alike. Some belongs to the stabilisation fund which will b r the nucleus of any America contribution to an international financial stabilisation fund. A large part of it is required to back nip the Nation’s currency. A lesser amount is needed to support bank deposits. Using figures drawn from -recent Treasury reports and Federal Reserve bulletins, one can billions of so-caled “idle” funds in three quick subtractions. Present size of gold holding: 21,300,000,000 dollars. First subtraction: the 1,800,000,000 dollars in the stabilisation fund which is some of the “gravy” obtained at the time of dollar devaluation and never put into the Nation’s financial blood stream, if you ’ll pardon the mixed metaphor. That leaves 19,500,000,000. *•

The Nation's common currency. eral Reserve notes, requires a 40 per cent, backing in gold. There "is 18,000,000,000 dollars worth of such currency. Second deduction: the amount of gold required to be held io back the currency (40 per cent, of 18,000,000,000 dollars, or 7,200,000,000. That leaves only 12,300,000,000. But another tidy sum of gold is being used to si., , ort Federal Reserve deposits with 35 per cent, go’i The law says it should be in gold or lawful nymey but it’s doubtful if there’s enough lawful money—other than Federal Reserve notes —to support the strip the Treasury's present gold holding fron| 21.3 billion dollars to 7.1 present size of deposits. Such money would have to be withdrawn from circulation to be so used. With 15,000,000,000 dollars of such deposits requiring a backing of 35 per cent., deduct another 5,200,000,000 dollars. This third reduction brings the figure down to 7,100,000,000 dollars.

What should it do with it? Some of it—not quite another billion dollars—will be added to the stabilisation fund and put in the general “kitty” for stabilising international financial relationships if the United States joins the recently proposed set-up. It has been suggested that the United States spend some of its gold holdings accumulating stock piles of rubber, tin, iron, and other strategic materials. It has been recommended that the United States buy strategic bases if it cannot lease them. It has also been proposed that the United States divide its gold with other nations to give them a bigger stake in the metal's future.

But unless the United States changes its gold requirements for currency and deposits, it will not, according to every indication to-day, enter the postwar era with more than 5,000,000,000 dollars or so of what can be reasonably called “idle.”, gold. It is significant that in recent testimony before the House Foreign Committee the adequacy of the Nation’s gold supply to meet postwar needs was seriously questioned; also, that Under-Secretary of the Treasury (Daniel W. Bell) has advised the House Ways and Means Comnyttee that the problem of a squeeze on gold might need investigation. The combination of physical idleness and bookkeeping activity regarding gold is what confuses the layman. —Neal Stanford, in the Christian Science Monitor.