LEGAL TENDER MONEY, ETC.

Otago Daily Times, Issue 22020, 1 August 1933, Page 8

LEGAL TENDER MONEY, ETC.

TO THE EDITOR. Sir, —Allow me to thank " Equity " for drawing your readers' attention to what he considers a contradiction in my letter of July 19. " Equity" claims that because Britain and New Zealand did *iOt increase their note issue overnight the depreciation of their currency on the foreign exchanges was due to what he terms " tinkering with the exchange " and not to an excessive note issue. Let us see how far this statement is true. In the first place, it will perhaps be of interest to take the relative value of sterling to the dollar over the series of years, let us say, from 1926 to 1933. If we do so I believe it will be possible to clear the point to " Equity's " satisfaction. At the beginning of the years 1926-1931 the exchange value of the dollar to sterling ranged from 4.85 to 4.88. Britain at the end of September, 1931, decided to depart from the gold standard. Although she was off the gold standard for, internal purposes, her currency for inter- ' national exchanges had to be put in relation to gold for valuation purposes. From September, 1931, to May, 1933, Britain's currency steadily fell when quoted against the dollar. The fall, it will be seen, was due to the decision to leave the gold standard^ —a decision of the Government, and not. of the brokers on the exchanges. In other words, it i was part of the political policy of the British Government. Now let us take the period from May, 1933. On May 26 a Bill to repeal the gold standard was submitted to the United States' Senate. At this date the value of sterling rose from 3.90 to 3.96. On June 1 it was quoted at 4.00. Since that- period it has risen to almost the par rate of 4.8665. Again, I must point out to " Equity " that this was due to the American Government's intervention, which allowed the banks to increase their (legal tender note issue. . The high exchange rates that are operating at present are the reflection of the actions of the Government in trying to control or manage the " value " of the currency, every action ■ being recorded on the foreign exwhich are as sensitive as the finest gOßsamer thread. I trust that this will convince "Equity" that it is the political pressure brought to bear on the banks that is the cause of our trouble, and not, as stated by him, " tinkering with the exchange." , ■ ' • : , ~ „ Iu dealing with the question whether there is an excessive legal tender issue, let us assume that America inflates her currency to a point at which the dollar reaches 4.8665, or parity with sterling, and that the franc remains at the present level of 85. It will be seen that, upon this assumption, though 'American and British currency are at par, they are depreciated against the franc. As the franc is convertible to gold on a basis of 124.21 to the sovereign, it is obvious then that both British and American currencies are inflated and' depreciated to the extent of the difference between 85 and 124 approximately. Any move made by either America or Britain in the direction of an expansion or contraction of their note issue, while on a managed currency, will reflect itself on the foreign exchanges ot their value in relation to the franc. Further, the value of the franc, as long as it is convertible to gold and the people can export and trade in currency as a commodity, will depend on the labour cost in the production of gold. In other words, the value of gold on the worlds market is found by the labour cost of producing'gold. The price of gold m. countries that are on a, managed or controlled currency depends entirely on volume of currency in circulation. The only method which bankers or brokers have of knowing when a country's paper issue is redundant or otherwise is by the amount which has to be given in exchange for gold. The quicker the people of the world realise they must get back to a metallic currency,, the basis of which is gold, the sooner shall we have peace and progress. ' >- f* , i May I add a few words in connection with New Zealand? Unfortunately for her people she decided to depreciate her currency to Britain's. In doing so she m effect placed a tax on her exports, the tax being taken not for the benefit of her own people, but for the benefit of the British money-lender. For internal purposes it has meant that we have a higher price level of commodity prices, which, as is well known, ■» lessens the purchasing power of the money of the people. .■ It again reflects in an increasing depression of business and increasing numbers of our unemployed, with the result that our lands and industries are slowly but surely passing into the hands of fewer people. For the benefit of "Equity" and all citizens who have' the welfare of New Zealand at heart, may I be allowed to say that the quicker they realise the danger of the present Imperial policy, the better will it be for the present and future generations of our children. Both Australia and New Zealand will find they, have sold their birthright before many moons. It behoves them to try and understand the monetary system and the actions of their parliamentary representatives. They are being sold slowly but surely to. the money-lender by their representatives, perhaps unconsciously, but nevertheless surely. One wonders if the one member of our Parliament, Mr Downie Stewart. who knows what is taking place, will have the courage and strength to force an alteration in the Government's policy. Time alone will tell. Let it be hoped he will.—l am, etc., C. M. Moss. North-Enst Valley, July .28.