THE GOLD STANDARD

Hokitika Guardian, 16 April 1925, Page 4

THE GOLD STANDARD

(City Kditoi' in the hnrnlou " Daily .Mail.” The ha: lie of the gold standard has still to tie fought in Parliament', and a great many people still have only the vaguest idea of what it is all about. .Most people seem to think the restoration rf the gold standard in this country means that the Government would <ail in Cl and 10s. notes and hand out sovereigns and half-sover-eigns in exchange for them. lint a gold standard and a gold currency, though related, are two dilterent tilings. The essential feature of a gold standard is that it is an international affair. Parliament ran and does enact that in Great liriiain everyone must accept a Cl note to lie in all respects as good a payment as a gold sovereign, hut it cannot force foreign countries to do so. Before the war British paper money was a-, good as gold to foreigners because they knew that for the mere asking tliev could have gold in its place, in other words, we had the gold standard for our money. During and since the war it has been made illegal to export gold troin Croat Britain, except under license from the Treasury. Thus .the foreigner can no longer convert his British paper money into its hue value in gold. And wliai annlos to notes np-

lies ;tlso to fj.nod British cheques and lulls psiynli|o i|i Ktcrliu;'. Tll<\v can I.W converted into notes but not into exportable {2,0 Id. In other words, we have fallen away from the {.'old stand-

in the absence of this convertibility, the international value ol the British paper Cl depends not on the value ol

thi' gold iii sovereign but oil numorous l’ other Fielors, such as the standing ol I Brit is!i credit, the comparative level of prices here and in other countries, the plenty or scarcity ol Ilritish papier ( , money, and the dillereuee, one way or the oLher, heLween the purchases and sales of British money For international payments, whether on account ol ciuhls, banking or other services, or v principal or intere-.t ol loans. HOW THE DOLLAR COMES IX. , 'I he luirometer of the gold value of the L’ since the war has been the AmorL> ienn exchange (imitations —that is the numher of American dollars into which it has been exchangeable—because dol- ,, lars have been (he one important ctir- . reiicy that has been convertible into | Hold. The immense amount of British r paper money printed during the years immediately following the war made it | verv cheap and its value in dollars sank. Since then there has been a . gradual contraction in the amount ol s L'l and Ids. notes in circulation and that has tended to improve the value . of the C. Before the war, because of our great r shipping and banking services and he- , cause of the big sums that foreign . nations owed us in interest on loans, there was more money due to us from | abroad than was tlue hv us, even , though we imported more goods than [' wo exported. This excess we employ- > ed in fresh loans to over-seas countries for railways and industrial and other ; development. During the war the balance went against us, and we transferred to the Tinted States, in return for war supplies. a large slice of the bonds and securities held by us and. moreover, incurred a big debt against ourselves in the United .States. This reduced, even after the war was over, our favourable annual balance ol international payments. Some authorities are inclined to think that it has been actually turned the scales against us, making an annual balance due lrom us to over-seas countries. Nevertheless wo continued to lend money to overseas countries. This entailed an offering of British money in the foreign exchange market in order to remit the loans over-seas, with a consequent depression of its value. During the past few months there has been concerted action to restrict foreign loaji issues in London. Americans. with their big gold supplies, have stepped into the breach and have been lending far more money to European countries than ever before, and this shifting of a great part of the tinan- ; cing of borrowing countries lias exert- . ed a powerful supporting influence on , tlio value ol the £. j PROBLEM OE THE EMBARGO. | In fact, tlie quotation for the £ ha ; 3 risen to within a tew cents of 4.sn 1 American dollars, which is the equita- j lent of a gold sovereign. When that / value has actually been reached, will | it l,e advisahle'to remove the embargo . on the export of gold, so that foreign » countries can, if they wish, withdraw ; sovereigns or equivalent gold bullion in exchange for British paper mottet. cheques, and hills i That is the pto- ~ blent that the Government lias to face. c This freedom for gold exports would I b give fhe £ a fixed gold value and j p would make for stability. At present the exchange value of the £ is at the tnerev of politico! ftnd*othor uiiccitnin

factors. By anchoring it to gold these unesrtainuies -would be removed. True, gold has not a fixed value in terms ol commodities, but it- is the only internationally accepted medium of exchange. and most important countries contemplate a return to a gold standard. The United States is credited with an intense desire to see burope as a whole return to the gold standard in order than the huge American tmpplie of gold may have a better value. Ou the other hand; ilm failure of Gen' Britain to retain to gold might huuuicap us in any American bid to (apturc our position as the world s monetary centre. The continued prestige of tie £ depends on a return to gold paymen One vitally important factor that hns to be considered is too i.alanee o* international trade and pi.ter transactions. if there is :"i annual baianc; due by us instead of to us and the present great ex(ess oi imports ove: exports is disquieting—a return to r free gold market might lead to such heavy drifts on our gold reserve as to necessitate strong protec live measures Before the war the usual protective measure was a higher Bank rate and dearer money, winch attracted loretgn balances here. After the financial upset uf the war. would tins delicate machinery ho adequate to restore equilibrium;' Keen if it were, would it be fair to expose our trade to the burden of denier money, handicapped as it already is bv the competition of foreign goods produced by cheap labour?

These are some of the questions that have to lie very carefully considered before the country is definitely committed to an early restoration of the gold standard.