The Southland Times. PUBLISHED EVERY MORNING. Luceo Non Uro. MONDAY, MAY 8, 1933. EXCHANGE EQUALISATION

Southland Times, Issue 22009, 8 May 1933, Page 6

The Southland Times. PUBLISHED EVERY MORNING. Luceo Non Uro. MONDAY, MAY 8, 1933. EXCHANGE EQUALISATION

Some little time ago the Roosevelt administration threw out a broad hint that the treatment of the international problems in preparation for the World Economic Conference would be assisted if the House of Commons and the Chamber of Deputies refrained from public discussions in the meantime, but, of course, it is impossible to avoid these discussions, and evidently the recent debate in the House of Commons has disturbed American opinion. When Mr Neville Chamberlain introduced the proposal to increase the Exchange Equalisation Fund he declared there was no idea of using the fund to support the dollar; but this did not satisfy the critics of the Government who were positive that the plan was to keep the value of the dollar from going lower. Mr Chamberlain explained that the Equalisation Fund had been used, and would be used, to prevent sudden movements in the exchange, and so combat the operations of speculators. The fund itself had not lost money; but the additions to it were necessary because owing to the influx of “refugee capital” into Britain the fund required more financial strength to deal with any change which might occur as a result of the withdrawal of this foreign money. Instead of trying to use the ineffective weapon of prohibition, the British Government is checking exchange so that the opportunities for speculation in exchange will be diminished. Instability is one of the great deterrants to trade. Exporters and importers alike find it dangerous to trade boldly when they have no guarantee that the prices to be paid will not be altered tremendously by a sharp movement in the exchange. On the other hand, whether the exchange be high or low, they can trade with confidence if they know that any movement will be within close limits. This is the value of the Equalisation Fund, and its operations have been confined to the protection, of the English pound. When President Roosevelt put the embargo on the export of gold from the United States that country went off the gold standard and the dollar’s value fell; but the Equalisation Fund obviously could not be used to protect the English pound and the United States dollar at the same time. The presence of a vast quantity of short term capital in Britain is a testimony of confidence in Britain, because a very large proportion of this money must have come from people in foreign countries who wish to have their money in a safe place; but this refugee money, being short-term, is a danger, because if it is withdrawn in large sums it must upset the exchange rates. It was the drain caused by the steady withdrawal of foreign capital which drove Britain off the gold standard, and the Equalisation Fund came into being as a result of that experience. Political acts in European countries have the effect of driving capital to Britain. It is easy to understand that Jews in Germany would be pleased to transfer their funds to Britain in view of the Nazi attacks, and it is known that many French people have sent their money 'to Britain rather than put it in their own banks. Some £30,000,000 of this has been lent to the French banks, but if the French people who place their capital in Britain wish to withdraw it again Britain must let it go, even if the loan to the French banks may not be called in as quickly. Capital in these cases is transferred by individuals, not by governments or banks, and so it cannot be said that these movements are dictated by financial conspirators. Reference to this aspect of the matter should be enough to explain the value of the

Equalization Fund, and the need for strengthening it in view of the possibilities in consequence of the unprecedented expansion of the short-term capital from abroad this year.