THE H.B. TRIBUNE TUESDAY, NOVEMBER 22, 1927 TOO MUCH GOLD

Hawke's Bay Tribune, Volume XVII, 22 November 1927, Page 4

THE H.B. TRIBUNE TUESDAY, NOVEMBER 22, 1927 TOO MUCH GOLD

JT has for some time been recognised by. American economists that the holding of something more than one half of the gold stocks of the world is not an altogether unmixed blessing for the United States. It is far and away more than is required as a backing to the paper currency that is now in almost universal use, and to a very large extent it represents stagnant capital that is fulfilling no really useful purpose. For the most part it is lying idle as bars and ingots in the cellars of the Federal Reserve Bank and of the Federal Treasury. To let any great proportion of it loose in the form of coiji would almost assuredly result in a further inflation of commodity prices that are already regarded as higher than is justifiable. There is therefore a strong disposition on the part of American financiers to seek all legitimate means of reducing home stocks and inducing some more t even distribution among the trading nations. It is on this account that the financial writer of a recently received American journal welcomes the. fact that during the month of September last, and for the first time during the current calendar year, there was more gold sent out of the country than was brought into it. The demand came from Argentina, whose wants had hitherto been filled from London, where, however, the market had tightened up, and it was hoped that there would be like calls

from other directions that would serve to relieve the congestion in the vaults of the United States and at the same time assist in regularising international exchange rates. According to this American writer the international movement of gold has been watched with no inconsiderable interest ever since 1918, for it has been accepted as affording a general index to the financial stability of the countries involved. Yet experience is proving that the actual possession of gold does not carry with it that full responsibility which it entailed only so recently as ten years ago. Attention has been called to the fact that, while a London bricklayer in terms of gold draws less than one-third the wage of a Philadelphia bricklayer, the average purchasing power of the hourly wage in London as measured by food and rent prices levels is about two-thirds that of the average Philadelphia wage in similar trade. There is some good reason that such is the case. Gold settlements between countries are not in coin, but in gold bullion. The shipment of the metal, therefore, from one country to the other does not represent necessarily any detraction from the total volume of currency within the exporting country. This is an important after-war development. Actually, the currencies in circulation to-day are tokens rather than metal, and, sneaking generally, gold and coin reserves might as well be simply “carried on the books.”

It is held that the present status of exchange rates indicates that the possession of gold in large quantities is rather potential than actual in its influence. If, it is said, the value of a foreign currency bore direct relation to the amount of the gold metal held by that country many more exchanges would be “off” to-day than are actually the case. But, looking at the current quotations, it is noted that the exchanges arc normal or nearly normal alike in countries with substantial gold holdings and in others where the holdings would hitherto have been regarded as short. To-day it is peculiarly a fact that the exchange is determined mainly, if not entirely, by the daily demand for international settlements on trade. Inasmuch as the European coun tries are making rapid industrial recoveries, rebuilding their trade connections and developing mar kets, exchange is rapidly returning to normal.

In the meantime, at any rate, it is pretty well accepted that the possession of gold is chiefly representative of investment wealth, and that the stocks of the metal have a tendency to flow to the market where loans are being financed. That, too, may prove but a temporary condition for, if the countries now borrowing find they can, either directly or in directly, repay in goods, the international gold balances may tend to remain undisturbed and the United States continue to be loaded with a big surplus of unprofitable metal. London is in the fortunate position that more than two-thirds of the output of new gold comes from mines under the British flag, from which the real requirements of the Empire’s financial centre are replenished. It is this circumstance that has enabled London to compete successfully with New York in supplying the wants of other countries, while at the same time helping to promote mutual trade. The high import duties imposed by the United States, on the other hand, tend to trade balances that are mostly in favour of that country being adjusted in gold, thus aggravating the already existing plethora.