THE PROBLEM OF GOLD.

Hawke's Bay Herald-Tribune, Issue 89, 1 May 1937, Page 4

THE PROBLEM OF GOLD.

At varying but, ais a rule, Aot very long intervals the subject pf gold in its relations to intemational finance crops up in our cable messages. To-day we ha.ve Sir George Paish, A well known British banker and economist, warniiig both Great Rritain and the United StateS that unless some better distribution of the world' fi supply of monetary gold is brought about ,rdther nations would learn to do without it and thus render gold wofthless." Though he lumped these two countrieS togethbr as holding between them "three-quarters of the World 's gold," his remarks were no doubt inteded a good deal more for American Consumption than for British, for it is in the United States the really vast accumulation — about half the total 6tipply — of gold has taken place. To such an extent has this gOne that over thero they are themselves afraid of it and have stowed ahvay untold millions of dollars' wOrth in COld storage so that it will not be available as a basis for an undue extension of banking credit that would end in dangerous boom conditions, of which there were ajlready quite sufficiently disquietifig symptoms, although at the monaent there is a strong reaetion. President Roosevelt himsOlf has be6h seeking for means whereby the flow of gold to his country might be checked, and latterly two alternative methods have been suggested, either a reduction of the standard Ameriean price — 35 dollars an ounce — constantlj' on offefj or else the imposition of some corresponding import duty. The possible consequences of the adoption of the former plaA are interestingly discussed by an AuStralian writer primarily concerned for the effect it might have.on the Commonwealth's own poductionof gold, still a substantial element in its prosperity. If, he says, the United States Treasury reduced its price to, say, 30 dollars an ounee, the effect would be an imrnediate increase in the buying power of the dollar inside the United States. It would now buy more gold than before, and because gold could still be exchanged freely for dollars. eind thus for Commodities, it wbuld biiy more of everything. Thus its value in forefgn exchange markets would rise. This, howeter, need not mean an imrnediate fall in the sterling price of gold- But before long the levelling effect of trade would be apparent* Aanerica would suffer in international trade, because her eoibpetitors would now enjoy the advantages of currency depreciation. l)ollars would buy more o£ their goods than before, and American importers would n Aturally take 0,'dvantage of this. The result would be a grOwiiig dCmand fbr f orei^n currencies to pay for the growing imports into America, and evehtually those currencies wotild appreciate ift tCrniS of dollars, just as anything rises in price for which there is aj large and pressing demand. At the end, the .dollar and sterfing Would asSume, possibly, not their old relationships, but soniething like them and the sterling price of gold wotild fall to about £6, instead of the £7 now ruling. This, it is held, would be, roughtly, the "long run" effect of a: reduction of the American official price. But there are very good reasons for believing tjiat no such reduction will be made, or that if it is made other f.actors will be brought into play to prevent the development of the situation outlined above. In the first place, Great Britain, the United States, and France are now asSoCiated in a strong organisa,tion for maintaining exchange rates. The agreement requires, in effect, that the Governments of the three countries shall not • devajlue their currencies further to obtain an exchange advantage. It is therfeore Unlikely that the United States Government would take any step which would give the two other countries an exchange advantagey for which they had not asked, and against which they were in effect pledged* Further, the British Empire produces more than half the world 's ,yearly output of gold. The livelihocid of untold numberS of people and the prosperity of large areas of the Empire depend on profitable production.- It is therefore to be' expected that Great Britain would devise means to resist any substatntial fall in the sterling priee of gold. Finally, the eventual appreciation of sterling which would result in a lower gold price would also result in lower prices for commodities inside the United Kingdom. In other words, there would be deflation and while the recent remarks of President Roosevelt suggest that he believes the time has come when rising prices should be checked. there is no evidence to show that he Would receive strong support from those in control of Britain' s monetary policy. There are, of course, many other factors entering into the stock exchange disturbances of which we have further news to-day. It may, however, be taken that doubt as to the imrnediate future of.gold values is by no means the least influential, both directly and indirectly.