IMPERIAL CURRENCY PLAN

Otago Witness, Issue 3594, 30 January 1923, Page 25

IMPERIAL CURRENCY PLAN

EASING THE EXCHANGES. PLAN FOR INTERCHANGEABLE SECURITY. (Frou Oub Own Correspondent.) LONDON, December 7. Some two years ago Mr J. F. Darling, a director of tlie London Joint City und Midland Bank, propounded a scheme for the stabilisation of exchange within the Empire by a system whereby branches of an Empire Bank wouldi toe willing to buy and sell cable transfers on London or any other point in the Empire at par. Mr Darling has again brought the subject before the public in a lecture troth in Manchester and in London. At a time when the need is for the expansion of our trade to replace the loss of the Continental connection, a revival of the question is highly opportune, for as he reminded his audience, the irregular or seasonal flow of trade with Austra'ia, ->ew Zealand, or South Africa led to exchanges adverse to these dominions, with the result, as he pointed out, that the levy which the Australasian banks make on trade is at present- equal, to about 8 per cent, per annum on an average, and has been higher. The hampering effects of exchange uncertainties are too well known to need emphasis, and following the analogy of the Egyptian exchange, which is maintained at the parity despite heavy one-sided trade, Mr Darling reasons that similar steps could be taken to prevent the consequences of alternating excessive imports or exports by the various dominions. “ONE-SIDED” TRADE. Apparently the course of financial events and the semi-permanent place which the Treasury Bill seems likely to occupy in British finance lias led Mr Darling to elaborate a plan for financial co-operation between the constituents of the Empire based not upon an Empire bank but upon a system of Empire currency bills similar in character to British Treasury bills. Taking as his text: “Bear ye one another's burdens, ’ M; • Darling suggested the conversion of a portion of the debt of each country in the Empire into Imperial Treasury bills or “Empire currency bills,” which would be repayable in any currencies of the Empire. But while the portion of debt to be converted into such currency bills would be fixed, in the first place, by arbitrary methods, there would only be a single uniform issue, and th - bills w’ould only be issued in London. Mr Darling urged that his proposals would eliminate many of the difficulties attaching to what he called “ one-sided trade ”; that is, when the imports of a country are in excess of its exports or its exports in excess of its imports not only in amount, but particularly as regards time. The proposal is to take a portion of the debt of each country in the Empire and convert it into a new security, which could bo called Empire currency bills, to which each country would attach special privileges. The arrangement would be entirely mutual and in keeping with that spirit of true co-opera-tion which is the hope of the Empire’s best development. While an entirely new security would thus be created, there would be no increase in the debt, but only a mobilisation of a portion of the debt already existing. This portion of the debt could be placed in commission in tho hands of Empire Currency Bill Commissioners, representative of the countries interested. Its position as an international financial contre and : clearing house, with the principal bill mar- j ket in the world indicates London as the j most suitable centre for the office of the commission. The bills would be issued only j in London, but the machinery could be so arranged that each of the participating, countries would have practically the same advantages. MAIN FEATURES OF THE SCHEME. The main features of the scheme would be: 1. There should be free convertibility as between Empire currency bills and the currencies of the participating countries. 2. Each country should agree not to issue currency unless against gold or Empire currency bi’ls. 3. Instead of separate issues of currency bills for each country, there should be only a single issue, whic-li the appointment of commissioners would render practicable. Thus there would be advantages both in the rate of interest and in the mobility of the bills. 4. One of the objects being to secure the utmost measure of negotiability, the most acceptable usance would be three months. The. issue could with advantage be divided into two sections. One in the form of bills at three months’ date; the other in the form of certificates subject to three months’ notice of repayment to be given by either side. 5. The rate of interest should be determined by open competition for the bills. The certificates could carry interest based on the bill rate. 6. There should be a reserve of gold—say, 5 per cent to 10 per cent, of the issue—to be contributed pro rata by the participating countries. “Thus we arrive at what would probably prove to be the most acceptable security in the world —short, freely negotiable, with a monopoly value as exchangeable into the currencies of the different countries in the Empire,” said Mr Darling, “ with a reserve of gold behind it, and bearing interest at the current rate, as determined by the free play of competition. If it were only to secare a, relatively low rate of interest and increased mobility for a portion of the Empire’s debt, with elasticity for the internal currency arrangements of each country, an issue of Empire currency hills would be well worth while. Blit it would accomplish more than that. The issue would provide that indispensable bridge between the currencies of the Empire, the absence of which has led to much disorganisation in the exchanges, to very high charges for the finance < f goods sold by one country to another, and to the curtailment and, indeed, sometimes the stoppage of trade. “With a scheme of note issue on the basis of Empire currency bills trade need not necessarily be hampered because it happened temporarily to be one-sided; if goods could not- be exchanged for goods, tliev could be exchanged for Empire currency bills until such time as the normal balance of trade was restored. BALANCE OF TRADE. “If imports from Britain to Australia exceed the exports from Australia to Britain, the Australian bank 3 will increase their supply of Australian pounds in Australia as they receive payment for the excess imports, and will diminish their supply of British pounds i’l London as they pay for the excess exports Tkotu Britain. How long such onesided trade could be financed would obviously depend upon the bailies’ supply of. British-pounds available in London for this purpose. An excess of Australian pounds

in Australia Is of no use for the purpose, because Australian pounds are not leg*r tender in Britain. “Now, if the banks were in possession of a security which could tie converted into either British pounds or Australian pounds, their position would at once be relieved and the fin.inoe of trade would run smoothly. Gold fulfilled this function, because for gold legal tender could !>e obtained in either country. If, however, in place of gold, which is non-interest bearing, wo have a security which carries interest—which carries interest moreover at the current rate, so that the banks could hold the security freely—trade should run more smoothly than, it did under gold. Empire currency bills would provide such a security. APPOINTMENT OF COMMISSIONERS; “It is proposed that there should be appointed Empire currency bill commissioners, representative of the participating countries, and duly authorised by their respective Governments. Their office would be in London,’ where tliev would also have custody of ths gold reserve. There are at least two ways' in which this commission would issue- bills. They could hold is trust the agreed proportion of the debt of each country against which Empire currency bills are to I>S issued, along with the agreed percentage of gold to Ire contributed by each country. Th# existing form of debt would thus not h® cancelled, and the commissioners would receive the interest which it carries. In all likelihood the interest on tire debt, after allowing for expenses, including holding ths non-interest bearing gold, would be great-elf than the cost of issuing currency bills. Any profit could either be added to the gold reserve or paid to the respective Governments. “ Another— and f venture to tbink a preferable—way,” continued Mr Darling, “ would be for the commissioners to be duly authorised, by whatever Acts of Parliament may be found necessary for the purpose, to issue Empire currency bills as a direct security and in conjunction with the other commissioners, the bills to state the percentage for which each Government is responsible. A, corresponding amount of the debt of each country would be paid off out. of the proceeds of the Empire currency bills. It could be left to each country to distribute its share of Empire currency bills among its nationals in this first instance. In order of ■nrioritjy would come tho substitution for securities held against the fiduciary issues of currencies. Next in importance would be to supply the hanks; as we have seen, Empire currency bills would be an indisr pensable oart of their machinery. Further, there would doubtless also be some of the general public who would desire to iiqhf them. Probably the simpler method of distribution. in the first instance, would Ire for each Government to sell the balance of its share after providing for its fiduciary issues of currency, and apply the proceeds in pairing off debt. The most suitable currency for the b'lls would probably be at three months. It would be desirable to divide the issue into equal amounts per week, spread over three months. Thus, there would Its m regular series of maturities.” A MATTER FOR THE IMPERIAL CONFERENCE. “Reduced to its essence,” says The Times, in a leading article, “Mr Darling’s scheme contemplates a great extension of the gold exchange standard with the avowed object of economising the use of gold, and making remittances between, say, London and' Melbourne, or any part of the Empire, no more difficult or expensive than remittances botween London and Land’s End. The advantages of a common Empire currency In facilitating the development of the Knfpijfb are manifest. We are aware that serious political obstacles stand in the way of this surrender of any Governmental rights, but co-operation in currency matters in order to avoid derangement of exchange need not involve infringement of such rights any more than co-operation in other matters. - The subject, though intricate and difficult, is one which might fittingly be discussed at the projected Imperial Economic Conference which tire Prime Minister proposes to convene early in the New Year. ’ CRITICISM OF THE SCHEME. Criticism of this scheme is naturally forthcoming. “Pending a return to a free movement in gold,” says the Morning Post, “Mir Darling suggests that no more suitable bridge can be found for trade within constituent "parts of the British Empire thaw e mobilised proportion of the war debts of each country. On this subject, perhaps, we may remark that post-war currency schemes not infrequently reveal their sharpest contrast with pre-war ideas, in that it was usual formerly to build credit bridges upon assets. generally gold, while nowadays liabilities seem to be regarded as an equally secure foundation.” , In a letter to the same journal Mr r rank Morris points out that tbe scheme which essentially establishes an Imperial currency and credit system destroys what should bs the inalienable right of every community, Canada or Australia, for example, to control its own destiny, largely dependent on its own credit and financial policy. The financial and credit policy of every oountry should be governed by its special circumstance?. Its productivity, its energy, its labour conditions. and 30 forth. Is it advisable,, qr even likely, that any progressive community would consent to circumscribe its activities according to the dictates of some central board of commissioners sitting in Londop.? “Under Mr Darling's scheme of a fixed ‘paper’ exchange,” he writes further, “ths country which produces least economically will be continually exchanging its ‘dear’ money for the ‘cheaper’ money of its move active, albeit, unwilling partner. Tho scheme is a reversion in another form to tho recent system of ‘pegging’ the exchanges. You cannot permanently fix the fiuanoial barometer at ‘set fair, and sooner or later the nation that docs so will be caught in .a storm. Surely tbe present international economic and currency difficulties are sufficiently serious and complex without throwing Dr Darling’s contentious and in many respects confusing scheme into the financial arena.” '