MAJOR CHANGE EFFECTED

Otago Daily Times, Issue 27387, 12 May 1950, Page 5

MAJOR CHANGE EFFECTED

Realignment Of Currencies After Britain’s Devaluation DOLLAR AND NON-DOLLAR AREAS New Zealand Press Association Special Correspondent Rec. 7 p.m. LONDON, May 11. The world’s soft currencies, and particularly sterling, have considerably improved their position since the realignment of currencies which followed Britain’s devaluation last year, says the money market editor of the Financial Times in a special article reviewing world dollar balances. Though there is, unhappily, no reason to suppose that a permanent solution of the dollar problem is yet in sight, there is also no doubt that the devaluation of sterling has produced a major change in the situation between the dollar and non-dollar worlds.

During the period from the end of 1945 until the eve of devaluation, says the article, the total American gold stock increased by 3,688,000.000 dollars, but with the advent of devaluation and world currency realignment, this tendency was abruptly reversed. The United States not only stopped acquiring gold, but it also actually began to lose it. In the last four months of 1949. American gold reserves dropped by 200.000,000 dollars, and although final figures’" are not available, at the beginning of April of this year, the United States gold reserve had dropped nearly 500.000,000 dollars below the figure for August, 1949.

This drop in American reserves has not been followed by corresponding increases in the gold holdings of other hard currency countries, such as Switzerland, which seemed to indicate that the soft currency countries had not only been able to absorb that proportion of the world’s newly-mined gold which had previously been flowing to the United States, but had also found sufficient dollars to acquire gold from America at the rate of about 800.000.000 dollars a year. Even this may not mark the full extent of improvement, for there is reason to believe that there has been a considerable increase in the dollar balances held by soft currency countries in American banks. If this increase has in fact taken place, the total expansion of gold and dollar holdings of the soft currency countries arising from acquisitions of American gold, purchases of newly-mined gold, and additions to balances in American banks, may have amounted to as much as 1,000,000,000 dollars during the first seven or eight months after devaluation. While it is true that the soft currency countries would have been unable to spare the dollars necessary to strengthen their reserves had it not been for the help given by Marshall Aid, it is also true that Marshall Aid was being received prior to devaluation, so that the basis for comparison exists. The quarterly statements on the gold and dollar reserves of the United Kingdom show that the biggest gain has been achieved by the sterling area countries. This group in six months increased its gold- and dollar reserves by 550,000,000 dollars. The,article concludes by remarking that although some s of the factors which have brought about this improvement are undoubtedly tempor J ary, the increased confidence which should be engendered should itself assist further recovery. The American Scene Simultaneously with the publication of this article, the Financial Times editorially discusses the prospects of American business for the remainder of the present year. After pointing out that in Janiiary few financial experts were prepared to predict that the then present prices would be maintained beyond the middle of the year, the Financial Times notes that the majority of these experts are now confident that the present favourable situation will continue for a full 12 months. Evidence on which this change of sentiment is based is formidable. The demand for durable consumer goods, such as cars and television sets, shows no signs of diminishing, housing contracts placed in March were the highest ever, and orders for new machine tools were the highest since' the middle of 1946. In spite of strikes, the production index is rising and steel production is above 100 per cent, of rated capacity. Finally—and what will possibly carry the greatest weight in Britain—ls the fact that the rising trend of unemployment in the United States has been reversed. In February, the number of workless reached 5,000,000, but in April this number had decreased by 1,500.000, leaving the total at no more than normal levels.