MONETARY POLICY

Otago Daily Times, Issue 21988, 24 June 1933, Page 17

MONETARY POLICY

PRESENT SYSTEM STRAINED DIFFICULTIES OF SOLUTION THE RESTORATION OF SILVER By expecting it to do the impossible an unfair strain had been imposed upon the present monetary system, said the chairman of the Bank of New Zealand (Mr R. W. Gibbs) in his address to shareholders at the annual meeting in Wellington yesterday. Various phases of the problem were discussed by the speaker, including the remonetisation of silver and the stabilisation of price levels, but the rather depressing confession is made that Up to the present no scheme has been advanced which has secured the approval of any large body of expert opinion. “ The calamitous fall in commodity prices throughout the world,” Mr Gibbs said, “ though undoubtedly due to a combination of many causes, is generally admitted to have been brought about in part by the failure of the gold standard system to function in recent years in the fairly satisfactory and almost automatic manner which characterised it in pre-war days. The monetary system has been blamed for much of the trouble in the world, but would any other system, have stood the strain 1 placed upon it with greater efficiency? The system has failed in so far as it has been called upon to do the impossible. Schemes innumerable in substitution have been proposed, but most of them lack some fundamental which would make their proposals applicable to our work-a-day life. . “ The report of the Special Committee of the London Chamber of Commerce on Monetary Policy has points to commend it to further consideration. In the first place, tiie committee set out the problems which industry and commerce are faced with as follows: 1. To restore and expand the purchasing power of the peoples of the world, without which unemployment must remain, and defaults, national . and individual, must increase. 2. When once a fair price level has , been restored, to eliminate, so far as may be practicable, fluctuations in price level due to monetary causes. 3. To remove the causes which are inducing nations to strangle world trade by tariffs, quotas, exchange restrictions, etc. 4. To eliminate the evil effects resulting, under the present monetary system, from an attempt to pay reparations and war debts. 5. Should this involve cancellation or substantial remission of war debts and reparations, to find a system which would avert the further crisis which would arise, owing to the ability of, e.g., Germany (with debt in this way reduced to £8 per head) to undersell Britain (with £125 per head), France., (with £56 per head), and the United States (with £27 per head). “ Then follows their proposal for a new monetary system, one controlling financial as distinct from commercial and industrial credit, by a system of rediscounting and thus introducing an ‘ automatic currency. 5 But herein, in my opinion, lies its weakness. It presupposes a general discount market, which may bo feasible in .large monetary centres, but inapplicable to the dominions, where there is neither a bill nor short-dated loan market. THE STATUS OF SILVER “ It is unlikely that the world’s monetary problems will be discussed without the status of silver being thoroughly examined,” continued Mr Gibbs. “ The Macmillan Committee laid down as an absolute requirement of prosperity the raising of commodity prices, and to this end the efforts of the World Economic Conference will be directed. Plans for uniting silver with gold as a probable, or at least possible, solution of our difficulties are receiving the strong support of many leading men, among whom are Mr Winston Churchill, Sir Robert Horne, Messrs Amery and Darling, and many others. “The Macmillan Committee, arrived at the conclusion that by 1940 the gold in existence would be inadequate to conduct the world’s exchange in commerce. If, therefore, a return to a metallic standard be contemplated by those nations now “ off gold,” it is argued that then will be the time to return to a regulated bimetallic system on the lines of that which appeared to answer well the requirements of a large portion of the economic world till as late as 1873. It is’ further argued that this would open up improved trade with the East, where nearly one-half of the human race adhere to a silver currency. In dealing with this hotly-debated subject, it is. I think, generally admitted that any conclusion arrived at would have to be largely international in its application.

THE "KEYNES PLAN” “ What is known as the ‘ Keynes Flan,’ by which it is proposed to issue certificates to be considered as equivalent to gold, to the extent of £1,000,000,000, for distribution among the nations *to foster international lending,’ has attracted considerable attention in the Old World, but its intricacies are too debatable to be discussed here. However, from the interest it has created, it is probable more will be heard of it at the Economic Conference. STABILISATION OF PRICES “ The attention of the general public has been focussed on currency problems more closely than at any previous period in history, and schemes, of the most bewildering variety for improving our credit and currency machinery have been advocated in every civilised country. If any method can he propounded whereby the general level of prices may be stabilised, and at the same time a reasonably steady rate of exchange may be maintained for international commerce, it will no doubt be eagerly welcomed by all financiers and business people. But the extraordinary difficulty of the problem is sufficiently evidenced by the fact that not a single scheme has been advanced up to the present which has secured the approval of any large body of expert opinion. “ I will not weary you by attempting to dissect the other hundred-and-one schemes which have come more or loss into prominence,” concluded Mr Gibbs, “ but until we know what decisions aro arrived at by the World Economic Conference now being held, which will naturally be international in its findings, it seems to be futile to further discuss the question meanwhile.”