SILVER PURCHASES

New Zealand Herald, Volume LXXI, Issue 21878, 14 August 1934, Page 5

SILVER PURCHASES

AMERICAN LEGISLATION BIMETALLIC STANDARD ISSUE OF CERTIFICATES The Silver Act which has been plit into operation in tho United States of America is essentially a measure for increasing the proportion of silver to gold in the monetary stocks of that country one-fourth of the monetary value of such stocks in silver. It was announced in a cablegram published in the Heram> yesterday that certificates against silver are already being printed on a basis of a full monetary value of 1 dollar 20 cents an ounce.

In the discussions leading up to tho passing of tho Act, an intention of which is to promote intercourse with silver-using countries, it was obvious that Mr. Boosevelt did not want any further monetary legislation at the present time. A recent message to Congress shows that ho recognises the importance of international accord on the subject of a monetary standard. In it he states that ho is favourable to an attempt to establish an international bimetallic standard and wishes to enlist the co-operation of other nations. On the other hand, tho aggressive silver group has been impatient of further international consultation, and it is apparent that the placing of legislation into operation at this stage is in no small measure due to its efforts. Discretionary Power Granted

The Act authorises and directs the Secretary of the Treasury to purchase silver at home or abroad to establish the desired proportional holdings, subject, however, to an exercise of executive discretion as to time, rapidity of accumulation and price. On account of the absence of more specific provisions in tljeso respects, the legislation lias been commonly referred to as permissive rather than mandatory. In effect it embodies a scries of compromises between Mr. Roosevelt and the silver group.

The Secretary of the Treasury is required to purchase silver until he has acquired a sufficient amount to constitute 25 per cent of tho nation's monetary reserve. Furthermore, ho is required to purchase that with silver certificates on the basis of the issue of the country's existing silver certificates, or he may change the content of the dollar upon that basis, and to circulate those certificates in the ordinary course of business.

In view of the concern of Treasury officials regarding -tho price which the Treasury might have to pay and the profits which speculators might make, provision has been made for a tax of 50 per cent on all profits on transactions in which silver is involved.

Prospective Acquisitions The prospective purchases of silver under tho Act have been referred to as amounting to various figures ranging from 1,300,000,000 to approximately 1,600,000,000 ounces. A Treasury return on April .'SO showed tho gold holding as amounting to 7,756,000,000 dollars, and basing a calculation upon this as 75 per cent of the total stock of gold and silver money contemplated by the legislation, it is estimated the total would bo 10,341,000,000 dollars, and the silver proportion would be 2,555,000,000 dollars. The present stock of silver dollars is 540,000,000. Including fractional silver coins, the total stock is about 840,000,000 dollars, and the difference between this and 2,585,000,000 dollars is to be added. This difference is about 1,745,000,000 dollars, which at 1 dollar 29 cents an ounce will apparently require about 1,350,000,000 ounces to make up. It is reported that Treasury officials aro now expecting to'acquire the entire amount provided for before tho end of this year, either by actual purchases or contracts for future delivery. At present silver certificates will bo issued only to cover the cost of the purchases, issues on account of the scignorage, or profit between cost and 1 dollar 29 cents, being reserved to correspond with the policy followed in tho caso of the "pi-ofit" arising from tho devaluation of gold. Possibility of Inflation

The point is that the additional currency will not enter into circulation unless increasing business activity requires it. The decision to issue certificates only to the cost value of tho bullion will, it is believed, largely restrict the immediate currency inflation, but the amount is still to be very,substantial.

The situation is now that Mr. Roosevelt and the Secretary of tho Treasury, while favourable to the reinstatement of silver in full monetary use, .desire to maintain the existing gold standard until it can ho merged into ;i bimetallic international standard in an "orderly manner. Whether or not the United States, by fixing tho relative values of gold and silver for legal tender purpose's within that country can determine their relativo values throughout the world, has been tho vital question in all her experiments upon the subject in the past, and is tho crux of tho differences as to results in tho future.