Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, FRIDAY, SEPT. 1, 1933. MONETARY SITUATION

Poverty Bay Herald, Volume LX, Issue 18182, 1 September 1933, Page 6

Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, FRIDAY, SEPT. 1, 1933. MONETARY SITUATION

Although Britain and America have both departed from the gold standard for the time being, there is steadily growing a realisation that gold cannot be discarded altogether, and the suggestion mentioned in our cablegrams this week that a general abandonment of the standard may eventuate lias aroused considerable anxiety, ,so much so that Mr. M ontagu Norman, governor of the Bank of England, has proceeded to Washington to confer with the President and the American banking authorities with the object of securing some understanding as to what the future policy as regards currency regulation* shall bo. Thus currency stabilisation, 1 ruled out of the deliberations of the Economic Conference, comes onco 1 mosc uppermost and is likely to engage more serious attention than it lias yet received. It is quite clear that stabilisation of some sort must be effected it’ international trade is to be resumed. The fracture of the exchanges has done more to kill trade between nations than all the tariffs ever written, and Governments can rewrite their tariffs as they like but they ( will not revive international trade unless they also restore an international measure of value. Tho United Slates may consider it is able to repair its shattered fortunes on a policy of pure nationalism arid live a life quite independent of foreign trade, but its leaders are oeginning to see that its prosperity, now happily on the upward trend, cannot, be sustained without rehabilitation of tho fortunes of other nations and without tne impetus to overseas trade that such rehabilitation would bring about. In recent months there has eventuated a very definite clash uotween the American Government, which believes in reviving business by artificial stimulation, and the gold bloc of Continental Europe, which is so deadly afraid of inflation —and naturally so; —that it will not regard the manipulation of currency 1 as a legitimate -means of building up industry. The British have carefully avoided the more spectacular methods of the Americans, but they have expressed themselves as ready to co-operate with them in any measures for securing definite and permanent standards of value. Meantime, whilst sterling remains the most trusted monetary unit, the British Treasury and the Bank of England face an -acute dilemma. On one side France, Holland and other gold standard' countries have sought British assistance to stem the rush to sell their francs, guilders and other currencies, which have marked the so-called flight to the pound. On tne other side, the British Government and banks have had to decide whether they are to risk moro and more millions in the exchange equalisation fund in keeping monetary prices stable, and especially in preventing the dollar from falling in pound value to such an extent that British trade- would bo jeopardised. Tho United Kingdom has actually been stabilising European currencies and Mr. Norman has been under a hot. lire of criticism for tiein-g the pound to other countries’ gold standards. A point has been reached, owing to the rise in the value of golifc when this l cannot be continued, and fears expressed that if flic upward gold movement continues England will be compelled to take further measures of inflation and depreciate the value ol tho pound. "What is feared in Lon, /■don," says ono correspondent, "is

that if once the holders of gold currencies—and many millions ,of pounds worth have been sent to England for; safe keeping—decide they are in peril through the likelihood of depreciation I by complete abandonment of tho f gold standard, then there will bo a. flight of capital abroad. In a measure this has begun, for pounds have been, bought feverishly on the Continent, the impetus to this movement having been given by the fall in dollar exchange, for it definitely lowers the prospect of foreign trade of -those countries sticking to gold. In the middle of these fluctuating factors Britain has been trying to steer a

middle course. On the one hand she

tries to influence the United States to consider the earliest stabilisation of the dollar. On the other hand she tries to save Europe from another crisis that would undoubtedly set back monetary recovery and dislocate confidence that is now slowly accumulating as the result of higher prices and wages in the United States.” “Advices received from Washington,” said the London Times City editor, six weeks ago, “leave little doubt that the Roosevelt administration is bent upon continuing with its experiment of inflation and depreciation of the dollar, which so far has produced results pleasing to its advo cates. It is easy, therefore, to understand the President’s unwillingness to agree to stabilisation at this juncture. Every country which has been through an inflation period is aware of its pleasant- stimulating effects, especially in its early stages, but not one has yet been able to avoid its evil aftermath. France indulged in inflation to such an extent that nor currency was depreciated to the extent of four-fifths of its prc-War gold value, but she has no wish to repeat the experience, and the same can be said of every country which has suffered inflation.” Inflationary ideas, however, have taken a firm hold on the American public, and whilst the President, to his credit, has so far abstained from actual depreciation of the currency within America, the fact that ho has taken power to do so has created so much uncertainty that the dollar, outside Ameriei;, has fallen, in valuo and disorganised the foreign exchange markets. In a recent speech in the House of Commons Mr. Chamberlain, Chancellor of the Exchequer, declared the depreciation ,of the dollar to bo due very largely to speculation. “It is,” he said, “an unnatural and artificial phenomenon, not based upon intrinsic economic and financial factors, but chiefly the result of speculation, which began in Continental circles and has been followed up by American speculations.” Mr. Roosevelt has been talking a good deal about “a commodity dollar.” In the minds of some authorities there is a fear that the President will determine to depart altogether from gold and base his currency upon short-term commercial paper representing various commodities. Such a currency would of necessity be a fluctuating quantity,. “Nobody knows, or pretends to know,” says tlic Times, “and few believe that th* President himself knows, what he really means when he asserts that ‘ tho United States seeks the kind of dollar which a generation hence will have the same purchasing power and debt-paying power as tho dollar value we hope to attain in the near future.’ It is known that he has been much attracted by various plans, such as that advanced by Mr. J. M. Keynes, for allowing the external value of currency to fluctuate in accordance with changes in the international price level. But exactly how is a secret he is not yet, prepared to reveal. All that is clear is that he intends that the United States should henceforth have somo sort of managed currency. It is possible that this could be operated in conjunction with the gold standard; that gold would still form the backing of the currency and international balances still bo adjusted by the shipments of gold.” The world will breathe much more freely when Mr. Roosevelt takes it more fully into Ms confidence, and the main purpose of Mr. Montagu Norman’s visit doubtless is to impress ftfliis fact upon him and to convince him that the present uncertainty regarding America’s monetary policy is a very potent factor in hindering world recovery.