EMPIRE CURRENCY.

Waikato Times, Volume 112, Issue 18723, 25 August 1932, Page 11

EMPIRE CURRENCY.

POSSIBILITIES DISCUSSED. LEAD TO WORLD CO-OPERATION. PRACTICAL PROBLEAI. ' . rr. (From a Canterbury Chamber of Commerce Bulletin.) It is undoubted that the International management of monetary affairs has been such as to make depression more severe, and/that some part at least of'the depression might have been avoided had money been managed from the international, rather than from contllcting:) national points of view. . > YYVv "Within the British Empire obstacles to co-operation exist in much less degree, and if co-operation between countries for their mutual advantage is,, to - be ■ achieved, * It 'should he more practicable to make a start within the Empire. An Empire currency plan does not necessarily involve .the restoration of the gold . standard,, either at old parities or new parities, nor does it necessarily involve the adoption of a single Unit of currency throughout the Empire. There is, in fact, a strong case for continuing with present units 'which have grown familiar by long use. But a discussion of the problem must touch upon recent, developments In . currency, upori the basis, for cooperation that already/. exists, and upon aims and methods of achieving more effective currency ■ management within the Empire. From 1925 to 1929, however, the general trend of world prices was downward. During that period a series of international strains developed which resulted towards the end of 1929 in widespread collapse on the stock exchanges and in the precipitation of the depression that has followed. Tho depression forced many countries off gold, and in September 1931, Britain also suspended the gold standard. It has been said that Britain was really forced off the gold standard by her efforts to combat declining world prices. It is possible that had Britain’s methods and Britain’s leadership been followed by other countries, the depression, might have been much less severe and the remedy much easier. The strength of the sterling group reflects the world’s faith in British policy and British leadership. At the present time Britain, more than any other, is looked to for a lead iri.mone-' tary management. The policy of her Government has not been, .clearly stated, but it is generally believed to be in close conformity with the view expressed by the Macmillan Commit- j tee and others, that every effort should •' be made so to manage money that the j general level of prices might be: raised to about the level of 1928-1929, afid afterwards stabilised, at that level. Tho Basos. There is little doubt that this general aim would be approved by the rest of the Empire. If the achievement of -the goal can be hastened by joint action and then co-operation of the dominions and colonies should: be readily forthcoming. Already there exists a considerable measure of co-operation in monetary management between the various parts of the Empire. This has grown up, however, rather by accident than by design, and rather in response to the need for banking facilities to finance ordinary trade operations and capital movements than as part of any definite plan for the closer Integration of Empire currencies. The question Is simpler, too, because many, parts of the Empire have the same unit of currency and have hanking organisations based upon English models There is, however, no real .reason why either different units of currenoy or the closeness of economic associations with countries outside the Empire should stand in the way of any dominion linking up with an Empire currency union. Already tho sterling group is a very powerful force in the world's monetary systems, and, if it were 'Strengthened by a definite Empire organisation, there Is little doubt that other countries would attach themselves to It, and so help to give Britain once more the undisputed leadership in the world’s monetary affairs. While the Empire countries have usually been described in normal times as being on the gold standtird, the methods of operating this standard have been modified In reoent years. Under an automatio gold standard, it Is customary for countries on that, standard to hold gold reserves as the basis for their currencies. If the balance of payments with other countries is against them, gold is expected, their reserves are depleted, and they are forced to take steps to restore a favourable balance. The essence of the automatic gold standard Is then the free movement of gold combined with the expansion of currency when gold Is imported and the contraction of ourrency when gold is exported. During the present century, the modifications developed ' have usually avoided large movements of gold. Countries have found it convenient • to hold smaller gold reserves at home and to keep some part of their reserves invested in short .term securities in the world’s large money markets. If the balance of payments were against them they might draw, not ion their domestic gold reserves, but on credits held in foreign centres. If. the balance of payments were in •tholr favour, they might receive this balance, not in gold to augment their domestio reserves, but in, credits which increase their holdings in foreign centres. ' ' / Y- . . . ■/ In the case of New Zealand, Australia and many other British countries, such operations were carried a stage further. Although these countries might hold gold reserves at lionie, the gold reserves were in practice and in normal times not used at all to settle' international balances. Their real balances held on account of International payments were not the gold reserves at home, but funds held abroad for exchange purposes, mainly in London. When Llio balance of payments was in their favour these funds were increased; when these balances were against them, these funds were depleted. This practice In ilsclf Involved some pooling of Empire reserves, for additions to reserve funds were normally invested in iho London money market and, when reserves were depleted, they might be added to by borrowing from that market. Perhaps the best method of securing Empire co-operation in currency

and banking management lies In the extension'of''qira'c tic os such as these. It should he clear that, for the greater part of the Empire, and certainly for New Zealand, monetary management depends much more upon credit than'upon cash .currenoy. In •countries where banking Is, highly developed the note issue is of relatively little Importance, so long as it is not unduly restricted, and cash is decidedly subsidiary to credit. It is the effective management of credit that is all-important. ‘ But reserves must necessarily, be held against credit liabilities, and a banker must always be’ln a position to meet tthe demands made upon .him. Co-opera-tion in banking provides the means for economising In reserves, pooling fluctuations In funds, and securing a higher volume and greater flexibility of: credit upon the basis of a given reserve. The .proposal for Empire currency and banking union opens up a prospect of securing such economies and conveniences over the Empire as a whole. The Practical Details. The ohief difficulty in the way, of ■such a project: is the obstacle that always . hinders co-operation. It mightybe .hece.si&ry to sacrifice 'some independence of action hitherto enjoyed In order to secure the advantages of team-work; Thero might, in certain cases, be some Immediate individual loss Accessary In order to, ■secure the 'Ultimate common good; The immediate gain to be achieved, (however, Is considerable; the ultimate gain might be very great. Already Britain, by balancing her budget, eto., has achieved a position whioh has enabled her to inaugurate a period of easy credit and monetary expansion.' The Bank of England discount rate, which was 6 per cent last February, is now 2 per oent; the market rate is little above 1 per cent; tho advances rate, according to Tho Banker, is hi many oases below 5 per cent; and successive Issues of Treasury Bills have been floated at less than 1 per cent. The Dominions might gain much for themselves if without unwise public borrowing, they could share in the benefits of this cheap money, and they might give much to the cause of Empire recovery If they did share It. For the object of cheap money is to stimulate expansion of production and trade, to reduce unemployment, restore confidence,, and increase consumption. Once movements in these directions can be begun, they are likely to act cumulatively, one upon another, and promote a decided movement towards general recovery. Tho wider the field over which they can operate, the •greater will be the stimulus to recovery. Hero also, co-operation is necessary. A Wider Field. But co-operation is required in a wider field as well. Among many causes that have contributed towards the slump, nationalist aims leading to the establishment and development of Inefficient Industries behind the .shelter of high tariff walls, unrestricted and unwise lending by creditors, acj eompanied by unrestricted and unwise ■spending by borrowers, both states and private Individuals, and the panic effort of each Individual and each oountry to safeguard his own position and to build up his. own reservesby securing a • greater share of ihe world’s resources, all have operated sLrongly. Co-operation requires- not only mutual understanding goodwill and unsolllsh devotion to a common cause, but -also experience, ability and | intelligent direction. It is required in ‘ the sphere of production and trade, of i borrowing and lending, and of migra- ) tion, as well as in the sphere of money, it involves some willingness i to pool the resources of Empire, witlii in agreed limits and to devote them 1 to a common plan for securing the greater welfare of ihe people who compose tlic Empire. This does not necessarily mean an orgy of Government restriction and regulation. Such co-operation would necessarily have to be largely voluntary and operated in Ihe main by nonpolitical bodies. We have some political co-operation now. it is closer economic co-operation iliaL is most needed. It should he cossible to de-

vise and operate a system of eo-opera-tlon within which .there might be ample flexibility and scope for progress, for the exercise of individual initiative, and for the activities of private enterprise. Co-operation in currency management might then operate as part of a wider plan of Empire co-operation. It might be developed, however, hs a beginning and give a lead to the development of general economic planning, -It should' consultation leading to understanding, goodwill and effective team-work In monetary management throughout the various parts of the Empire. It should make possible the pooling and consequent economy of the Empire’s monetary reserves and do much to facilitate the flow of trade,, capital and credit between parts of the Empire. It might also give the dominions the great advantage to be set cured from the leadership of Britain and from the ripe experience and wisdom of London. Within each country also, there might be seoured greater economy and flexibility of money and banking operations, even though each preserved its own Individuality and developed, i,ts, organisation and its operation in the manner most appropriate to its own particular needs. There remain many practical details of the application and management of such a scheme of co-opera-tion to be decided. The questions of units of currency, bases of currency, exchange parities, whether, fixed or variable, appropriate ratios of reserves, methods of management, all these ; are practical details which require examination by men In close touch with both the principles and practices of currency and credit management. Most of the detail must necessarily bo filled in by people familiar with the -technical aspects.