COMMODITY MARKETS AND TRADE.

Manawatu Standard, Volume LVI, Issue 262, 3 October 1936, Page 5

COMMODITY MARKETS AND TRADE.

MARKETS DISTURBED. (By “Penloo.”) The news of last -week that Franco . and the other members of the Gold j Bloc had abandoned gold was thrilling. . This made it possible for the various . currencies to be stabilised in respect of exchange, and a late report stated that the greater part of the world is now stabilised. The position of the Stock Exchanges throughout the world . has to be adjusted to the new conditions, and that will take some days to accomplish. Some Stock Exchange securities, and particularly gilt-edged, should be easier, for the reason that interest rates will go higher, that is to say the day of per cent, and 3 per cent, is over. The agreement entered into between Britain, France, and the United States stabilised the three principal currencies of the world on agreed ratios, and these ratios are to be maintained by the use of many millions of exchange stabilisation funds. The gold pound sterling has apparently been taken as the basis and the dollar and the franc have been placed in relation thereto. There is perhaps some good reason for this. The franc, has its gold content altered for the second time. On the first occasion the franc was depreciated and 125 francs were equal to the gold pound as compared with 25 francs before the war. The present alteration seems to have increased the gold content, for the par value is 105 francs to the £ This appears to be due to the fact that in recent months the franc had been overvalued in the exchange market. Early last week the pound exchanged for about 75 francs, now it is 105 francs. The effect of this on France must be excellent. Those who hesitated to purchase French goods because of the high exchange will now find it more profitable to do so. Furthermore, the tourist ■ traffic of France should improve. The dollar in relation to sterling has been undervalued at 5.05 dollars to the pound. Under the new agreement this is corrected, for the exchange is fixed at 4.86 dollars to the pound. It will be remembered that in 1934, the gold content of the dollar was reduced, and the President was given power, exercisable before the end of March next, to further reduce the gold content. The gold sovereign has not been tampered with in any way in respect of the gold content. It is the same sovereign that we have known for ever so long, and it was fitting that it should have been the pivot for the other currencies. The other two important members of the Gold Bloc, that is Holland and Switzerland, had no option but to come off gold. There is some advantage for New Zealand and Australia _ in Holland going off gold for we will now be able to buy goods and raw materials in the Dutch East Indies cheaper than previously. With the exchange value of all the principal currencies stabilised there is presented an opportunity for free buyI ing and selling in foreign markets. It is difficult to say how Germany, Italy and Japan will fare, especially the latter, whose currency is very much depreciated. Japan has relied on this depreciation to push her goods in foreign markets. The agreement between Britain, France and the United States envisages the relaxation of exchange controls and quotas, and unless this is done, international trade | will continue slow. For example, Yugoslavia prohibits the imports of a long list of goods except from countries with which it has a clearing agreement. Most of the smaller European countries have clearing house agreements, and are obliged to restrict imports from other countries. It will take some time to iron out the exchange problem but it must be undertaken. In cases like our owrr where there is no valid reason for maintaining an artificially high exchange it would be well within the rights of Britain to insist upon a progressive reduction. On August 31 the Reserve Bank held about £19,000,000 of London funds, and the trading banks about £17,000,000, or a total of £36,000,000, which is very much more than we need. But if the exchange is lowered there would be an increase in imports, which would detrimentally affect our local industries, and that would give rise to many local complications which would probably be found very difficult to overcome. It must not be assumed, however, that our case is exceptional; as a matter of fact it affects all producing countries. In the mistaken belief that the depression would continue indefinitely, remedial measures—extremely crude—were hastily applied. The worst feature has been tampering with the currency. However, all the man-made difficulties must be faced and dealt with, and with care; above all the hurdles obstructing international trade must be removed as speedily as possible. There will be numerous immediate advantages arising out of the exchange stabilisation pact; for one thing there should be an appreciable improvement in the values of agricultural products and raw materials. Already there has been a sharp rise in dairy produce prices, and we expect that wool will continue on the upward trend. France should be a prominent buyer of wool in our market, and should also be a buyer of wheat and other foodstuffs. The rapidity with which other countries aligned themselves with the three leading nations is proof that the world has been waiting for such a lead. If international trade expands, as it must, and more hands are employed, the demand for foodstuffs must in- , crease. The next step will be to free the capital markets. There are many countries needing capital to develop their : resources, which they can obtain only from the capitalistic countries. If Eng- ‘ land relaxes her control of the capital ' market, but exercises discretion as to the class of borrowers seeking money, ; there will soon be an advance in money i rates; in fact, apart from this, the . rates must advance, for the mere ex- ■ pansion of international trade will re- ■ quire many millions of credit. A rise in money rates is inevitable, and that is something that the investor will welcome. The next important step will be fixing a new standard of value. It , is difficult to see how gold can be d is- < franchised in this, for all the nations , are fairly well supplied with the metal, i The world economic outlook is very t promising. *