WAR-TIME CURRENCY

Stratford Evening Post, Volume I, Issue 257, 8 October 1931, Page 8

WAR-TIME CURRENCY

HISTORY OF MEASURES THE 1925 RESTORATION INFLATION AND DEFLATION For long prior to the outbreak or war in 1914 Great Britain had been on the gold standard. One of the Government's lirst acts was to suspend the standard virtually though not in theory. On August 6 the Currency and Bank Notes Act was passed, providing for the issue of £land 10s Treasury notes. At the same time the Bank Act of 1844 was suspended and the Bank of England was able to expand its note issue above the fiduciary amount. However, this privilege was used lor a few days only, and increases in Bank of England notes during the war were backed by increases in the gold reserve. Treasury bills, Treasury notes and Bank of England notes were theoretically convertible into gold on demand, but gold could only be exported under license and the meltingdown of coin was illegal. For these and other reasons gold practically passed out of circulation into the reserves of the joint stock banks and the Bank of England. This increase in gold reserve and the provision of Treasury notes as a means of cash payment provided the basis for a considerable expansion of credit without endangering the banks' capacity to meet demands for cash, and made possible the large volume of loans raised by the Government during the ,va'\ Three methods other than taxation were used for raising funds, namely, the issue of Treasury bills, "ways and means" advances, a form of overdraft granted to the Government by the Bank of England, and direct loans. Deflation Proposals

Under these conditions of inflation the percentage of coin and bullion to the total note circulation fell from 118 in 1913 to 431 in 1916, and still further to 321 in 1920. In August, 1918, the Cunliffe Committee presented a report, which recommanded the restoration of conditions necessary to maintain the gold standard. The measures it proposed were briefly: balanced and Government borrowings cease, in order to reduce inflation: (2) that the bank rate of discount should be raised so as to check foreign drains on the gold reserve or to encourage the movement of gold to the United Kingdom, while lessening the internal demand for loans and causing prices to fall; (3) that the issue of Treasury notes should not be increased. These proposals have been the basis of British monetary policy since 1920. In March, 1919, the "pegging" of exchanges on New York was abandoned, but the export of gold in general remained prohibited. The bank rate was raised to 7 per cent, in April, 1920, and the other recommendations of the Cunliffe Committee were also carried out, at the cost of high taxation and much trade depression as the process of deflation went on.

Reversion in 1925 In April, 1925, the embargo on gold export was removed, with the result that the country was again placed on the gold standard so far as international trade was concerned. The formal reversion was brought about by the Gold Standard Act, 1925, which provided that "unless and until his Majesty by proclamation otherwise directs," the Bank of England should not be bound to pay any note of the bank in legal coin and bank notes should not cease to be legal tender. It withdrew the right of any person to take gold bullion to the Mint and have it assayed, coined and delivered to him, but continued the right as it affected the Bank of England. The sub-section that has now been suspended provided that so long. as the provisions set out above remained in force the bank was bound to sell gold bullion at the price of £3 17s 10|d per ounce, but only in the form of gold bars containing approximately 400 oz. troy of fine gold. The effect of the Act was that although gold coins did not again circulate internally, notes and gold bullion became freely exchangeable for each other, except that bullion must be bought ii] amounts of 400 ounces. Hence the '.nternational movement of gold was again free. Currency Amalgamation By the Currency and Bank Notes Act of 1928 conditions for the issue of £1 and 10s Bank of England notes" were laid down and provision was made whereby all outstanding Treasury notes should be deemed bank notes, backed by sufficient assets transferred from the Treasury. The fiduciary issue was fixed at approximately £200,000,000, but might be expanded or contracted by Treasury minute, on the bank's request. As cover, the bank was to hold sufficient securities in its issue department, but was allowed to hold not more than £5,500,000 worth of silver for the same purpose.

The gcfld standard was suspended in Great Britain during the Napoleonic wars, but less than five years after Waterloo the Government took the first step toward resumption of the standard. The Bank of England then began paying notes in bullion, not coin, at the price of £4 Is of notes for every ounce of gold, the sale of gold being in amounts of not less than 60 ounces. As from October 1, 1820, the price was reduced to £3 19s Gi, and as from May 1, 1821, to the Mint price of £3 17s lO&d, which meant that as from that date bank notes were exchangeable pound for pound for gold bullion in amounts of not less than 60 ounces. On the resumption of the gold standard in 1925 after the Great War there was no premium to pay for gold and the minimum Avas raised to 400 ounces owing to the change in values. Although great preparations were made to meet an anticipated drain of gold after the resumption in 1820 none occurred. In fact, gold was rapidly accumulated in the bank's vaults.

"Laddie," said the old pro. rformerly | well-known on the boards, but "resting" in Auckland for many a year now) to a reporter, "take it from me, when trouble comes there's nothing like a pipe to tranquilise the mind! My old Meerschauw is the best friend I ever had. and I never make a move of any consequence until I've had a smoke." There are heaps of men like that. Tobacco, often reviled by non-smpkers, has proved a friend to millions! Of course there are tobaccos and tobaccos. Some brands are best, avoided. Too rich in nicotine. They gradually undermine the health, because nicotine daily absorbed into the system through the pipe is a slow but sure poison. Almost all the imported tobaccos are like that. Our New Zealand tobaccos on the other hand, are absolutely safe. You see they are toasted, and the toasting neutralises the poison, besides giving them their much prized flavour and aroma. There are four brands only of toasted: Riverhead Gold, Cavendish, Navy Cut No. 3 and Cut Plug No. 1G.—209.