THE POUND CRISIS

King Country Chronicle, Volume XXVI, Issue 3446, 22 March 1932, Page 2

THE POUND CRISIS

BACK TO GOLD OR NOT. SIR ARTHUR SALTER'S VIEWS. PACTS AND DANGERS. When he attended the Guildhall banquet the Prime Minister stated that the "Government intended as soon as practicable to stabilise the pound. The whole question of whether we should aim at stabilising the pound as soon as possible—and if so, at what parity—is discussed below by Sir Arthur Slater in a special interview he gave to the London Observer recently. Sir Arthur Salter has just retired from the position of Economic Adviser to the League of Nations. "I think," he said, "we ought to stabilise the pound on a definite basis as soon as possible for the following reasons. In the first place, while there is uncertainity as to the pound's future, London's financial position and a great deal of its insurance business are at risk. In the second place, there is the danger that the currencies of a number of other countries will not only go off gold, as some have already done, but that their currencies will become disorganised as they did in the early years of the war, which would be a fatal thing for world trade generally. In the third place, there is always the danger, which we can indeed prevent, but which exists, that the pound will seriously lose its value. "The pound cannot indeed lose its value very seriously so long as its internal purchasing value is substantially maintained. But if an increase in the cost of living is followed by an increase of the wage level, the pound might get caught in a vicious spiral which would be a very grave matter. One reason why it would be so serious for us is that a big factor in our balance of payments is the obligations of foreigners to pay us in respect of previous loans, debentures, etc., over £100,000,000 a year in terms of pound sterling. To the extent to which the pound depreciates we should be making a gift to the foreigner that we cannot afford.

Essential Conditions.

"At the same time, it is not practicable to state the precise moment when we should stabilise the pound for several reasons. We need to be reasonably assured that the gold standard will function properly in the future, and that some of the principal causes which have prevented it from functioning in the past will be removed. This involves some consideration of Governme'nt debts. It also means a reasonable assurance as to the way in which the central banks will co-operate in the future to facilitate the working of the gold standard. Moreover, it is very difficult at the present moment, in the midst of a financial crisis while the currency policies of a number of countries which have gone off gold are uncertain, and while we know no more of our own future balance of trade than we do now, to determine the point at which we should stabilise the pound. It is also, of course, vital that before tieing ourselves again to gold we should be absolutely assured of sufficient liquid resources to support the new stabilisation permanently. It would be utterly disastrous if, after again stabilised the pound, we lost our ability to support it. "There is another tactical consideration. A considerable number of other countries besides ourselves have gone off gold, and they are likely to look to use for a lead as to what policy they should pursue in the next few months. If we handle our situation properly we may be in a strong bargaining position with the goldusing countries to secure the vital conditions that are necessary for the proper working of the gold standard in future.

Managed Currency. "I think it desirable that we should aim at returning to the gold standard in future (though not at the old point of parity), because the difficulties and dangers of a managed currency remain very great indeed. At the same time it might be wise for us not to pledge ourselves absolutely to returning to gold until we have negotiated with other countries, including the gold countries, as to the proper working of the gold standard in future. If it proved impossible to secure these conditions, it is not conceivable that some form of managed currency on the banks of a concerted agreement between the countries that have gone off the gold might, in spite of all the danger and difficulties, be better than returning to gold under conditions that make it likely that gold prices would continue to go down.

"It is clear, for example, that if all the countries that are now off gold and who represent a very large proportion of the world, were to decide to stay off gold, the value of gold would be greatly reduced. Gold

prices would go up, and the real burden of gold debts would be diminished.

"However, as I have already said to you, this should only be kept in mind in case the alternative of negotiating for the proper working of the gold standard were to fail. We should aim at getting these conditions and then return as soon as practical to gold. At what parity? I would suggest at a parity which should be nearer the recent exchange value of the £ than its old parity.

The Pound's "Anchor."

"In the meantime there is one point of very great importance in the near future. Directly the pound went off gold its only real anchor was its purchasing power. As long as the main wage and price level remain at about what it is now the pound cannot seriously depreciate. It is vital that this should be maintained. The cost of living index must indeed go up a little because of the increased cost, measured in pound sterling, of imported food and raw materials. This increase, however, need not be subtantial, as imported articles do not, to a large extent, enter into the cost of living figure. If there is no other aggragavating factor there is no reason why we should anticipate an increase in the wage-price-cost level. It is obvious that this danger (in some ways the greatest danger now confronting us) would be gavely increasel by any hasty imposition of new duties which would substantially affect the cost of living. "While the pound is not stabilised on a definite basis I think that the maintenance of its internal purchasing value should be primary objective of policy, to which measures in every sphere of policy, including tariffs, should be subordinated. When the pound is definitely stabilised, on whatever basis, we shall then be in a better position to consider what further changes in the more permanent economic structure of the country are desirable. In the meantime, policy needs to be dominated by the needs of the emergency.