OFFICE OF GOLD.

Western Star, 5 August 1938, Page 3

OFFICE OF GOLD.

i ’ THE WORLD’S MONEY. EXCHANGE FUND AS A SHOCK 7 ABSORBER. I Though gold no longer passes current as a coin, gold has still the most important monetary use. What then is its monetary function ? According to the latest report of the Bank of Inter'- s national Settlements, “the metal is still the ultimate medium of international ; settlement, though it may now tend to pass between exchange funds instead of between central banks.” The same idea is expressed by a writer in the ‘Midland Bank Review’, jn more ornate language. ‘‘The world,” he says, < “has laid aside the. restrictions inherent in a monetary system governed by gold, ; and yet has retained the services of the metal for the purposes it has fulfilled i through countless ages of history.”’ Both writers, it will be observed, still regard gold as the appropriate asset to meet external claims. At the same time gold has been centralised to an increased extent. The ' report recognises, for example, that the t British authorities hold part of the ef- i fective gold reserves, of the sterling area. Finally, gold is segregated as a 1 specific reserve for international capital < movements —a development which might become more widespread and efficacious if the British example of a two-way exchange fund were followed by other countries.I PROBLEM OF DISTRIBUTION: The most significant conclusions sug- ■ gested by the report is that in contrast 1 of the position of 10 years ago the world ■'s now adequately supplied with gold. The main problem which remains is that of .securing a better international distribution ot the metal. Once a country I has an adequate supply its division into separate compartments, corresponding re- 1 spectively to internal and external needs, ' becomes possible. Tlie world has still to learn the best line of division, a lesson which in the long run experience alone caa tovh,

j The flexibility of the British _ fund, though perhaps not as great as is desirable, has been extremely useful to the British economy. No other fund at the ; present time, the report of the Bank of International Settlements points out, has the borrowing power of the English fund, under which new gold can be taken up in replacement of Treasury bills, which in turn are issued to the market. Consequently, the British is the only two-way fund which, on balance, can absorb gold as well as part with it. The other'funds can take in gold only to the extent of any earlier losses they may have sustained. Exchange funds nevertheless have automatically acquired many functions unsuspected when the British fund was established six years ago. They do not confine themselves to the effort to check speculation, or to iron out short-term exchange fluctuations. At times they have been powerless to fulfil these primary tasks. Their actual achievements include the insulation of their countries internal credit supplies from the effects of the ebb and flow of hot money. They also provide means for dividing a nation s gold reserve into two parts, one of which is implicitly earmarked against possible future exportation of funds. Finally, the funds have more recently acted as shock absorbers against gold hoarding and dis-. hoarding. They have, at their own price, supplied gold when hoarding demand arose, and absorbed it when hoarders disgorged their holdings.