THE GERMAN MARK.

New Zealand Herald, Volume LIX, Issue 18180, 28 August 1922, Page 9

THE GERMAN MARK.

f-"7- —~ ■ *V DEPRECIATED CURRENCIES. LESSONS FROM THE PAST. DDTFICULTIES OF RESTORATION. BT H. W. SEGAR, M.A.-J JT.N.Z. INST. Instances of speculation in the mark have come to my notice. They range from the man of fortune who hoped to add at nominal expense to his already abundant supply of wealth, to tl\e comparatively poor who see here at least a possible way to easier circumstance that they have little hope of achieving in any other direction. Now, exchanges are always the subject of more or less speculation in the great world centres on the part of a limited class of men having special knowledge and favourable opportunities. But when they become the object of popular speculation, it is generally a sign that the currency has approached the worthless stage. To those that are ignorant of the possibilities and the probabilities of the situation, the great magnitude of the apparently probable gains overcomes any reluctance that would otherwise arise from unfamiliarity > with' the subject. Great nominal sums of money can be purchased for small sums of actual cash, and the purchase of apparent" fortunes cornea within the reach of practically everyone. And so the craze grows until fcho bubble bursts. The histories of the depreciated currencies of the past reveal instances. When, for, example, toward' the end of the eighteenth century, the assignats ceased to be a medium of payment, when the Paiis shopkeepers refused to give change for them and the country folk to accept them in payment for their produce, they became an object of speculation. Speculators, iwe are told, bought up assignats on the chance of political favours from the Jacobins, giving them value, though they ultimately faded away to nothing. Others turned them intogoods the moment they received them. This is , what Ger-' mans arefrlargely doing today with their marks. Restoring Monetary Unit to Old Value. Many people are now asking what can be done when a currency becomes depre-;. dated, and what is likely to be done in the case of the depreciated currencies of Europe in general and of that of Ger-.' many in particular. In certain cases it is practicable, and on the Whole - advisable, to return to the old units, and to raise the value of the paper unit until- it will, exchange freely with the coin of the same denomination. This is what was done by England after the Napoleonic warn, when the depreciation that?- took place in the paper currency relatively to gold was very similar in extent to that which has taken place in recent years with respect to British currency. But, whereas the Bank of England ceased to pay gold in 1797, it was not /ill 1819 that provision could be made for the gradual resumption of cash payments, and it was not till 1823 that the process was completed. The whole process thus took some 26 years, and t/he history of this period would suggest that it is or may be no easy matter to restore, a currency once it has become depreciated even to a relatively small extent. Great Britain at the present time is endeavouring to restore her currency again as she did a century ago. She is very gradually reducing her paper issue with the 'object of increasing its purchasing power. At the same trme the Bank of England is endeavouring to gradually increase the gold reserves, so as to have enough gold" to be able to face a return to the cold standard when the purchasing power* of the pound note is once, more brought up to that of its nominal equivalent in gold. This latter effort mav be followed by means of the Bank of land returns, published in the Hkrai<d every week. One week there will be no increase in the gold reserve, anotherweck there will be An increase of £1000 or 42000. f Brfoieh Payments to America. In this way the reserve two or three months ago passed the £127,000,000 mark. Then there were three drops in succession of £500,000 each, apparently necessitated by the interest 1 to the United States. The process has now been resumed, but, at the slow rate exhibited, it will take a long time to make good this £1,500,000, let alone to bring up the receive to £150,000,000,, which is the minimum amount which the Cunliffe Commission considered would make it worth while to review the position with a view to considering what further steps might next be taken or recommended. U each payment, of interest to America is going to put the same strain on the gold reserves, as the last appears to have done, matters do not appear very hopeful. Britain is not alone in having a currency which is, comparatively speaking, orilj* siightljt depreciated. Several of the neutral couf%ies were, in spite of being out of the war, subject, to such straid as to lose the gold standard, and have their currencies depreciated in varying degrees. We may instance Norway and Sweden, ; The exchanges of these countries, too} reveal little or no progress toward the restoration of the respective currencies. It will thus be obvious that whjjn we come to such an extreme case as that of Germany the restoration of the monetary unit to "its old value must be regarded as quite an imp6*ssibl» proposition^ Recognising the Inevitable. ' There are 'some advantages in restoring a depreciated monetary 'unit to its original value, which lead nations to make sacrifices to achieve it when within the range of practicability,^ 1 but which do not lead them to make equal sacrifices for, a partial restoration. Especially would" they be unlikely to be tempted to make sucli sacrifices for the benefit of foreign speculators. The classical case of irremediable depreciation is that of the assignats of the French Revolution, although it is likely not to remain so much longer. The fate of the German mark, while equally impressive, will probably be more instructive, as well as more interesting, for the world of the future as concerning a nation under more modern conditions, and ono moreover highly industrialised. ' Now the Jacobins always remained faithful to the assignats, which were the currency of the Revolution. _ They regarded *it as a matter of policy, if'not of honour, to save them. Speculators relied ort this hope. The Jacobins actually made efforts to stop' the continued depreciation of the assignats. At one time they sold public lands for assignats. Later they introduced jn the mandats another paper currency, to be from depreciation, and for which the assignats were to be exchanged in a fixed ratio. But all was of no avail. 'The mandats met the same fate as the,assignats. Position of a Stricken Nation. A stricken nation—and a nation whose currency has become all but worthless, is necessarily of this class—cannot attempt the restoration of its monetary unit. Nor can it substitute a new currency which will ultimately do better, if the circumstances of the State are such that it must continue to issue the new currency in excess as it did the; old. It must begin humbly and'pay'its way. That is the first essential. Then it is "possible to introduce a new currency for which the old will exchange at rates determined by its then value, if it has any value left. The question of debts has then to be settled, State debts and private debts. At what rate arc these to be settled? There may be some chaos here. The fairest principle would <te to settle each debt on a scale determined by- the amount of depreciation obtaining' at the time the debt was contracted. But at such a time practical difficulties are likely to play havoc with principles. -.". HMHII, 11l 1.111111 II ■ ">' '