EXCHANGE DIFFICULTIES

King Country Chronicle, Volume XXVII, Issue 4396, 23 May 1933, Page 6

EXCHANGE DIFFICULTIES

SOME PROPOSALS EXAMINED. ; Proposals for the alleviation of the world's economic ills are legion. The crisis leading to Britain's abandonment of gold, the continuance of the fall in prices, the attenuation of world trade, and the cause of exchange restriction have all been diagnosed; but on one yet has produced a safe cure. The London Times in a recent issue of its trade and engineering supplement, publishes an interesting review of two sets of proposals, one put forward by a Frenchman, and the other by an American. The French writer, in particular, disposes of some illusions popularly held with regard to international currency. • The Frenchman, writing in La Situation, asked whether it was necessary to abandon the gold standard. Leave gold for good and a free rein would be given to inflation; the gold standard, when its rules were strictly observed, put an effective limit to the circulation of an increased supply of monetary tokens, and this upset the calculations of those who would suppress gold. They were influenced by two illusions, the first of which was that the crisis would be ended by raising price levels artificially. The fact, the French writer averred, was that prices would rise when the real causes of the present troubles disappeared, and these did not arise from disordered currencies. Possibly the money question had a remote connection with the position, in so far as it encouraged the boom which preceded the crisis. The French writer considered that the functioning of the gold standard was strained by the operation of the gold exchange standardi which influenced or encouraged inflation. Even so, the actual monetary disorder was the consequence and not the cause of the world's eeonomic disorders.

The other illusion to which the French writer referred was the contention that an increase in the supply of money would cause prices to rise. Elaborating this point, the Times says it is difficult to see why the idea has gained so much ground of late, seeing that the facts directly contradict the . theory. The article proceeds:—"The quantity of money existing before the crisis, the French writer urges, Was sufficient at the precise time when prices were at their highest level. The inference is, then, that this quantity is now superabundant, having regard to actual prices and the state of the exchanges. Moreover, the supply of money has been considerably augmented throughout the whole world, and yet prices have not been prevented from falling. This being so, it would seem a vain hope to raise prices by further increasing the money supply." The American, an engineer, considers that the best interests of all nations would be served by organising an international clearing association. The assumption is that nations having currencies of constant purchasing power for a wide variety of commodities, and having confidence, would be willing to form such an association, with branches in such member nations, each being represented in the clearing association by an official of its own Treasury. An importer of cotton in Liverpool would purchase, say, 40,000 dollars' worth of cotton from an exporter in New Orleans. Assuming the £ sterling to be worth five dollars, the importer would pay for the cotton £BOOO to a branch of the international clearing association in Liverpool. The association would make a record of the transaction and give the importer a clearing association order on the United States Treasury for 40,000 dollars. The importer would send this to the New Orleans exporter, and the association Would deliver the sterling it received from the importer to the British Treasury. In effect, a country's Treas-j ury would pay its exporters for goods

exported, and its importers would pay the Treasury for those imported. Exporting and importing operations would thus offset each other.