THE DOLLAR AND GOLD

New Zealand Herald, Volume LXXI, Issue 21716, 3 February 1934, Page 10

THE DOLLAR AND GOLD

The new monetary situation in the United States is aptly described by the Secretary to the Treasury as "on a gold bullion standard —1934 model." The new model differs from the old because of the devaluation of the dollar. This has already influenced the price of gold, and may continue to do so. But the chief interest in the announcement now ! made centres in its effect upon the exchange value of the dollar. "Henceforth," runs the statement, "the currency will be backed by bullion, which will not be obtainable by individuals, but will be available for transmission to balance foreign accounts." This is unmistakably a gold standard, and as such it should stabilise the value of the dollar abroad. So long as gold can be bought in the United States and shipped to balance foreign accounts the exchange value of the dollar in foreign countries should not vary more than the cost of transferring the gold. Since the bank crisis of last March the United States has been, for all practical purposes, off the gold standard. A temporary embargo on the export of gold then imposed was renewed in April, and in the following month the gold standard was abandoned by statute. This was not an act brought about by the pressure of relentless circumstances beyond the control of the country, as was the case when Britain took the step in 1931, but a deliberate act of public policy in the plan to raise internal prices and check deflation. The momentous decision was made when the British Prime Minister was on his way to discuss with Mr. Roosevelt the questions that were to come before the World Economic Conference, a fact which gave it a dramatic significance. It was then thought that the devaluation of the dollar would not be necessary. But the dollar has been devalued and the country is back to a gold standard which will place it in much the same monetary position as France, where the franc has long been devalued but a gold standard maintained. The step may be welcomed in the interests of international trade. Violent fluctuations of the dollar will be prevented in the exchange markets of the world and the resulting stability should encourage the more even flow of commerce, without which there would be a constant check to recovery. The first speculation from the United States suggests that Britain's answer may be an attempt to drive down the pound in relation to American currency. A more likely, and a more hopeful, sequel would be an agreement between Britain and the United States for the stabilisation of the dollar and sterling..