Poverty Bay Herald. PUBLISHED EVERY EVENING. GISBORNE, THURSDAY, MARCH 7, 1918. GOLD AND SILVER.

Poverty Bay Herald, Volume XLV, Issue 14547, 7 March 1918, Page 2

Poverty Bay Herald. PUBLISHED EVERY EVENING. GISBORNE, THURSDAY, MARCH 7, 1918. GOLD AND SILVER.

Reference was nmdo in these columns a few days ago ,to the enormous increase in the indebtedness of the belligerent nations, reaching to something 1 liko twenty billon pounds. This great inflation of credit is causing economists some concern, and is leading to some very interesting developments in regard to the values and the supplies of precious metals. It is generally accepted that unless currency' has a metallic baek^ ing it must inevitably become worthless. Only tho extremists contend! that so long as paper and ink hold but and printing presses are available we need not bother about money. Gold is the metal which has furnished the backing for and has. .stabilised credit for many years, but the credit structure of the world has so suddenly expanded since; tho war began that the existing quantity of gold is quite inadequate Co bear the burden imposed on it. A , metallic basis for credit, of course, need not equal the volume of credit. . It will usually answer all practical purposes if it is sufficient to assuro prompt redemption on demand for that, part of thd. outstanding credits which are represented by paper money. At the place of ultimate redemption financiers like to have a 50 per cent, gold reserve against notes. Doubtless that is • more than necessary. The United States ear-marks about. 42 per cent, gpld against outstanding green-backs, and requires the Federal reserve banks to maintain a , 40 per cent, reserve. In that country all forms of solvent credit, bank or circu-

lation, aio redeemable iii gold an demand, but that is not true of any other belligerent unless possibly Japan. It may not always continue to be so in for if Victory Loans increase tliero will | simply not be the gold In the country to maintain the necessary backing. Americans therefore are turn-

ifug itheir attention to bi-n*etallism, which was once a live political topic in the States, Mr. Bryan resting his Presidential candidature on the argument that silver should be standard money 'on the basis of one to sixteen compared' with gold. As matters now stand silver, through the extraordinary demanc that has arisen for it, is rapidly approaching that* parity. The question that is exercising attention in America, a: also in Britain and other Allied coun-

tries, is whether it is possible to maintain an adequate metallic bass for out- I standing credits without makingt use o' both gold and silver. If silver is introduced, some contend, the basis will bi diluted, and if it is not introduced,, others point out, credit may go smash, and the loss to owners' of credit may be infinitely greater than would result from dilution of the basis. But sllvci is not by any. means too plentiful, and the steady rise in its price complicates the situation. "The demand for silver," says the Journal of Commerce, "is the largest experienced for years. The usual requirements of the Far Eastern countries, China and India, and in Mesopotamia and other Asiatic countries, haye expanded with the increase

in exports and in prices. But of more importance has been the growing demand for silver for coinage in European countries, notably 'England and Franca. In order to finance the war il has been necessary to withdraw all gold from circulation as far as possible to furnish the basis of credit expansion, and silver has come into use as a principal medium of exchange. If the price of- silver goes* sufficiently high it is conceivable that the various belligerents will start to hoard it as they have done with gold." Silver is being hoarded, as a matter of fact. The actual requirements for silver coin are increasing rapidly, owing to military disbursements, and yet coin put into circulation disappears into stockings., AH the mints oi the world are working day and nighi trying to fill the sieve. Great quantities of gold and silver go to the East. India has cotton and jute to sell, and, in accordance with the prevailing custom in international trade, her merchants demand cash with the order, or something near it. Japan gets, and must have, cotton from India, and much of the gold America has been shipping to Japan ii; payment for silk and tea has been passed on to India for cotton.. But India really needs silver worse than it needs gold, for the rupee is the money of the people, who are highly prosperous, and hoard vast quantities of it rather than put it in banks. India's lack of silver coinage is quite as pressing as that of any other country, and all countries need it. "The Indian currency problem," says another writer, "is the problem of the British Empire. India has had good harvests in recent years, and piled up a large credit balance. The warring powers do not want to export gold to India, because they need the yellow metal for their own reserves. Large silver exports to pay for their purchases mean bidding the price up against themselves, as the experience of the last two years has amply proved. India would be filled with high-priced silver metal. Should there then be a crop failure in that couritfy next: year, the large Indian demand for the metal would stop and the price might fall, thereby decreasing the value of India's silver holdings. Silver might in that ovent be 'exported from there and contribute' to a declining market." The British Government, with the object of stabilising the Indian currency, has lo get the, price of silvei fixed at about 3s i7d, '"but "' ln, -America the silver producers haye agreed to «ell and the Government to purchase; at a dollar an ounce. This price \^'s expected to stimulate production, and' it^is expected that 100 million' ounces will be available in the current year. Another aspect of the situation is that tho increase in the price of silver is threatening the sud sidiary coins, of nearly all .countries, and sufficiently rapid recoinagc with increased silver content; is impossible with -the present mint , capacity. It is ; believed that except by concerted Governmental action to check the "'rise' i in tile price 61 silver, the silver coin of the world "will 1 go into the melting pot. If tho priccsf go higher tho Governments will >he coini ing silver at a loss— hitherto" there has been considerable profit to the , State, known as seignorage— unless .they' reduce the size of the coins, which would lead to complications, for big and' J little coins of the same value could hardly be circulated by the same treasury, and Governments could not be expected to follow all the fluctuations of the silver market by similar changes in the weight of tho coins. These, however, are merely temporary aspects of the silver problem. The fundamental matter is the preservation of a metallic basis for all credit, and as there is not enough gold to go round economists are urging the metallic base should be augmented by restoring silver to its old state. "When a waggon drawn by a single horse is stuck in the mud," says one writer, "does the driver disdain the assistance of an equally gtfod horse, if available, to pull him out? The financial world is not_ strong enough to pull out of the mud of discredit with gold alone, ijt will stick there unless it. calls silver to its aid." Everyone knows there is not enough gold to provide a sovereign at the back of every note, but that ther* is, or was, enough to practically assure the conversion of any number of notes likely to bo presented at any given time. Now with the vast increase in the issue of notes, especially of those of minor denominations— and the Home Government is getting ready 50 million five shilling notes— it will be 'reassuring to tho public if silver is mado a legal basis of credit and the reserves of irf are increased. So with the exigencies of the war situation bi-metalKsm is likely to become an- accomplished fact.