THE GOLD STANDARD

Taranaki Daily News, 17 October 1931, Page 9

THE GOLD STANDARD

BRITAIN’S ABANDONMENT SOME PRiOBLEIMS EXPLAINED. — — I The popular interest of problems surrounding the gold standard and international exchanges was well illustrated yesterday when an unusually large gathering of business nien listened with close attention to an address on the subject by Dr. E. P. Neale at a gathering of the Auckland Chamber of Commerce. Dr. Neale discussed at length the method by which the price of gold was determined, how the metal was used as the basis of credit and its flow from nation to nation. It was probable, he eaid, that the departure of Great Britain from the gold standard was not deliberate so much as compulsory, because, ®f a sudden demand froin foreign countries for gold from London on which they hqd claims by reason of investments on tae short-term London money market. If through any cause, as was temporarily the case at present, the currency of Britain was undervalued in the United States, consumers living in that country would purchase many products from Britain because of their extraordinary cheapness. Every purchase would increase the demand for the currency of Britain and the price of her currency would gradually rise. Consumers in the United States would continue to buy from Britain until the rate of exchange eventually reached the purchasing potVer parity; that is, until the products of Britain had lost theiiexternal cheapness. As long as. men were actuated by motives of self-inter-est and economy it was inevitable that exchange quotations eventually would return to purchasing power parity. That parity, however, might, bo a varying one if the two countries both had not gold as standard money. The result was that there was a progressive inflation of one country’s currency relative to that of the other. The result of the present situation, as lohg as it lasted, should be a buildingup in London of the balances of the Australian and New Zealand banks owing to the improved trade balances facilitating a drop of their exchanges toward parity with sterling. The effect would be greater the fewer the countries that chose to tie their currencies to sterling rather than to gold. If Britain ultimately returned to the gold standard on the old parity, a reverse process must be set afoot before the necessary relation between prices in Britain and in America to restore parity of exchange could be achieved. If Britain declined to revalue her pound note, in terms of gold or decided tp abandon any fixed parity of gold altogether, the trade advantages of countries whose currencies were tied to sterling would be permanent, insofar as the present measure of inflation in Britain lightened the real as distinct from the money burden of fixed interest or of other contract charges in .such countries as compared with the burden of similar charges in similar industries in countries adhering to the former gold parity.