The Press Thursday, March 10, 1932. The Position of Sterling.

Press, Volume LXVIII, Issue 20492, 10 March 1932, Page 8

The Press Thursday, March 10, 1932. The Position of Sterling.

It is possible, as has been reported, that the strengthening of the sterling exchanges is not wholly relished by the British authorities, because the effect must be to discourage the export , and encourage the import trade at a time when the adverse balance is still, according to estimates at the end of January, a million a week. Invisible exports—shipping, insurance, and oversea interest receipts —were still declining, while visible exports were improving only a little. Again, there is the danger, psychological rather than material, of a relapse. The question is whether the improvement in the position of sterling is sufficiently well grounded to be maintained; and if it is not, then stability at the lower level, which was itself encouraging, would have been preferable. Some advance was expected. The Monthly Bevicw of Lloyds Bank in January anticipated that the pound would rise within a few months to levels between 3.60 and 4.10 dollars, and foreign bankers also looked for an improvement; but they thought that in the long run a fall was more probable than a rise. Sterling might be depressed by the American effort to sustain prices, which would force up the cost of essential British imports. It might be weakened by the flow of new gold to the Bank of England from India, where the premium has led to the sale of hoarded coin and ornaments and produced exports at the rate of £2,000,000 a week. Third, the Bank of France has pursued the policy of repatriating sterling Balances when a rijje in the exchange has facilitated this, and it may still do the same. But the most important factor, probably, is the state of the trade balance. If it continues to be adverse, foreign or domestic capital must be drawn on to meet the deficiency; and if the exchange rises rapidly, it pays neither the foreigner nor the British capitalist to transfer funds to London and wait for the appreciation. In other words, a rapid rise in sterling, unaccompanied by correction of the trade balance, is likely to be followed by a relapse. As long as British exports are checked by foreign reluctance to buy, sterling can have no natural buoyancy. On the other hand, there is a slight chance of finding a higher and more secure basis for sterling in better arrangements between the countries off the gold standard, as Sir Basil Blackett recently argued; but such arrangements, if they are possible and necessary, can only be regarded as a second-best to a permanent re-ordering of the world's monetary standards. Sir Basil thought this would not come eoon; but it may be accelerated by the disagreement be- j tween the two chief gold-holding countries. If the United States pushes steadily on with a policy of inflation — and the French think that the Reconstruction Finance Corporation scheme is nothing less —and if France as steadily deflates, then, as a writer in the New Statesman and Nation recently said, " the gold will flow like "water, and New York will soon be "asking London to summon a confer- " ence to discuss a new gold standard." Such a conference would have it in its power to do untold good; but the good would not be done by agreement on anything short of the " well ordered " international action" to secure " a " soundly managed gold standard," of! which Mr Reginald McKenna spoke in his annual address to the shareholders of the Midland Bank. The only alternative, he said, was "a managed "standard without any metallic basis "at all." These' are striking words, and they are spoken by a banker whose judgment has been strikingly vindicated-. They raise also the interesting speculation whether Mr* Runciman's speech, reported in tha cables to-day, with his reference to " currency sanity," applies definitely to one alternative or to the other.