THE OTAGO DAILY TIMES THURSDAY, APRIL 11, 1935. A BREACH IN THE GOLD BLOC?

Otago Daily Times, Issue 22544, 11 April 1935, Page 8

THE OTAGO DAILY TIMES THURSDAY, APRIL 11, 19 35. A BREACH IN THE GOLD BLOC?

Belgium litis had during the last twenty years a chequered currency history, which might be held to justify passions and alarms in comparison with which all the excitement aroused by exchange controversies in New Zealand would be tame indeed. After the dislocation caused by the German occupation during the war, Belgium, in common xvith most other European countries, drastically inflated her currency, so that by September, 1925, the exchange rate between London and Brussels, Avhich in 1914 had been £1=25.22 francs, had fallen as low as £1=112.5 francs. An abortive attefnpt at stabilisation in 1925 failed, and further depreciation of the currency folloAved, with violent exchange fluctuations, until October, 1926, xvhen the exchange rate was fixed at £1=175 francs, and a new unit of account, the belga, equivalent to five francs, was created. In the light of this history, it is not surprising that Belgium has, during the depression, followed the French example in her efforts to maintain the gold standard. People who have already experienced the shattering effects of catastrophic price movements, and violent exchange fluctuations, are naturally hesitant about subjecting themselves to the risk of a repetition of such disasters, a state of mind which sharply differentiates opinion in many European countries from opinion in New Zealand or Australia. Adherence to the gold standard has, however, imposed upon Belgium serious handicaps from which many other countries have sought to free themselves by severing the link Avhich bound their currency to gold. While wholesale prices are now a little higher in Great Britain than they were in 1932,' they had fallen in Belgium during the same period by nearly 15 per cent. Such a sharp fall obviously created serious difficulties for Belgian producers, and in recent months there has been a groiving feeling in nearly all the countries Avhich are still faithful to gold, in favour of abandoning, or at least of modifying, the gold standard. Solemn official announcements that no change of policy is in contemplation have not ahvays had the soothing effect Avhich was intended, and though Belgian devaluation still leaves her in form a member of the gold bloc, her action is clearly a serious bIoAV for those avlio insisted upon a rigid adherence to the status quo. In essentials, though the machinery adopted for getting relief is different, the Belgian situation Avas not unlike that Avhich avrs believed to justify exchange depreciation in New Zealand. Instead, however, of being satisfied with a measure of exchange depreciation Avhich was avoAvedly temporary, but which might also have been carried further if circumstances appeared to warrant it, Belgium has definitely, once and for all, reduced the gold content of the belga by about 25 per cent., so that Avhile the depreciated £ sterling would purchase 21 belgas at the beginning of the year, to-day it Avill purchase about 2Si Belgium is thus free from uncertainty about the future gold value of her currency in a way that New Zealand is not, but at the same time a formal decision of this kind, at a time AAdien world conditions are still extremely fluid, obviously carries serious risks with it.

Few peopie in New Zealand can afford to criticise harshly the policy which the new Belgian Government has decided to adopt. Our own experience has, however, shown that the advantages anticipated from exchange depreciation are in some measure illusory. It is a game at which more than one can play, and, especially when the players are numerous, the advantages tend to cancel out, and the controversies which arc aroused tend to divert attention from the more fundamental problems of adjustment which still await solution. Already Belgian devaluation threatens to provoke additions to the list, already too long, of trade barriers in Europe, and while it may not be very profitable at this time of the day to discuss whether exchange depreciation in New Zealand was justified or not at the time when it was imposed, our experience entitles us to suggest that the rosy hopes held out by ardent propagandists for exchange depreciation should always be treated at least with cautious reserve, if not with profound scepticism.