The Wanganui Chronicle TUESDAY, SEPTEMBER 29, 1931. THE GOLD STANDARD

Wanganui Chronicle, Volume 74, Issue 230, 29 September 1931, Page 6

The Wanganui Chronicle TUESDAY, SEPTEMBER 29, 1931. THE GOLD STANDARD

T-HE gold standard is the yard-stiek for measuring values. Gold is given a definite and fixed value in its relation to coins of money. Every ounce of gold taken to the British mint is minted into coins at the rate of £4 4s ln other words, the British mint will always exchange coins of the value of £4 4s 10jd for an ounce of gold. The British monetary unit is the golden sovereign. Silver and copper coins are called token money because sueh coins are mere tokens of value; a silver shilling does not contain silver to the value of one-twentieth of a sovereign, therefore it is not a shilling’s worth of value of itself. It only retains its value because of the ability of the owner of twenty shillings to exchange them for a sovereign in gold. A golden sovereign also has a fixed ratio of value to the dollar. The gold contained in a sovereign equals the gold value of 4.866 American dollars. Gold is the standard whereby both countries measure values. Gold has been selected as the standard value because of its suitability for the purpose. It is a metal that is sufficiently precious for a small quantity to represent a large quantum of value; it is durable, and it is also universally acceptable as valuable in itself. If a people were to be found who did not regard gold as a metal of value, then some other standard would have to be sought out before trade could be conveniently carried on with them. The universal acceptability of gold as a means of settling accounts accounts for its use. When the reciprocal trade of two countries is equal, gold does not enter into the international transaction. When, however, an unbalanced condition prevails, the cost of credit or the rate of exchange moves against the country whose exports are of the lesser value. When the cost of credit is more than the cost of shipping gold from the one country to the other, then merchants, instead of buying credit bills, buy and ship gold in settlement of their obligations. When the marked is free of export restrictions then it is said to be a free gold market. When, however, a restriction is placed upon the export of gold, the cost of credit bills rise, with the result, as between London and New York, the exchange rate moves higher, fewer credit dollars being purchasable by the credit sovereign. Looking at the matter from the other end, a sovereign’s worth of gold in New York, by establishing a credit of five dollars there, can be turned into twenty-four shillings’ worth of credit in London. The result is that because of the exchange situation gold actually gains in value. The gaining in value by gold takes places not only in New York, but also in London. The Bank of England, of course, does not cease altogether from shipping gold because England is temporarily off the gold standard. It continues this operation only to a limited degree, and therefore London can afford to pay more than the standard price for gold, which is £4 4s Hid per ounce, because it will be cheaper to ship the gold to New York than to buy credit at four dollars or less to the pound sterling. Obviously, then, when exchange rates are in a condition of unbalance, the value of gold moves upward.