FUTURE OF GOLD

Taranaki Daily News, 29 December 1934, Page 7

FUTURE OF GOLD

international currencies. ' PROFESSOR CASSEL’S VIEWS. Has the day of the gold standard closed? Professor Ernest Cassel, eminent economist, believes that it has. He puts the case in a Scandinavian journal. The sterling group he considers is an international system of paper currencies, firmly linked with one another, not. as a visionary ideal, but as an enduring reality with which we must make our account. In defiance of all established views, the system has been found to result in Very considerable internal stability, which, if measured in purchasing power in relation to goods, has actually far surpassed what has been achieved in this respect by the gold standard. The rates of exchange of the sterling group countries in relation to one another have likewise shown, broadly speaking, a large measure of stability. The stability displayed by the new system of paper currencies was at first attributed to mere chance, but it has now been maintained so long that the public has begun to look upon it as an abiding factor. Further experience is wanted in the handling of the new system, and the entire economy of the different countries will have to be adjusted to the sys~ People even in the paper countries are looking forward to a return to the gold standard, Professor Cassel continues, but the necessary agreement with the- presemt gold countries would not be reached without a radical reduction in the value of the gold currencies, which are now inordinately over-valued and seem to show a resistless tendency toward still greater over-valuation. Even if such, a programme were carried into effect, the world would wake up to the discovery that, after all, it had not returned to a gold standard system in the former sense of the term, but rather to a system of paper currencies having some connection with gold. . .. * It would then be clearly realised that gold itself had no fixed value and that efforts would have to be concentrated on the stabilisation of the value of gold. Such a system would be in a supreme degree what people call a managed currency. Thus a return to the former gold system, which is supposed to work automatically, is in any case out of the question. : ; GOLD NOT INDISPENSABLE. ■ It will be asked how an international system of paper currencies can be made to work properly, and especially how it will be possible to make international payments under such a system and to attain stability in the international rates of exchange. The idea that an international gold standard cannot be dispensed with seems to be based mainly on the supposition that consignments of gold are necessary in order to make up deficits in the balance of international payments. This dogma, Professor Cassel asserts, will not stand examination in the light of reality. The gold reserves of central banks are in most cases quite inadequate to equalise differences in the current balance of international payments. Such differences have to be adjusted either by permanent loans or by short-term credits and the movement of mtematibnal securities. In the last resort, the balance will have to be made up ,by an adjustment of trade between countries. Under a system of paper currencies, countries .which are sound financially would make up any deficits in their balance of trade in much the same way as they did during the gold standard system. A fair degree of freedom in international trade and in the movements of capital is, of course, imperative. Otherwise, no monetary system can attain stability, and, as shown in recent years, an adjustment of the international balance of payments will be rendered possible only by stoppages of payments on an extensive scale. Stability of rates of exchange under a system of paper currencies recent experience in the sterling group shows is attained by substantially the same means as under a gold standard system. It is not the gold standard that maintains the fundamental stability of the rates of exchange, but it is rather this stability that renders it possible to maintain the gold standard. Even under a gold standard this stability can be attained only by a monetary policy which maintains currencies at their proper internal purchasing power. It is on such a monetary policy that the new system of papor currencies must likewise be based.