The Guardian And Evening Star, with which is incorporated the West Coast. Times. SATURDAY, AUGUST 15th., 1925.

Hokitika Guardian, 15 August 1925, Page 2

The Guardian And Evening Star, with which is incorporated the West Coast. Times. SATURDAY, AUGUST 15th., 1925.

TUB c;01.1) STANDARD AND TR-ADU On the above question a ‘ixjiulon financial journal of a recent date proceeds to remark that one efl'eet of the adoption of the gold standard has been a rise in interest rates and the creation of a fear that this movement may go further. It is the opinion of some finl atuia! experts who are not financial cranks that the removal of the embargo on gold exports was a mistake because the country is not yet strong enough to meet all the demands that may lie made upon its stock of gold. It is true that no difficulty was experienced in maintaining the position in pre-war days, but conditions then were very different from those ruling now. At present the country has to find a heavy sum every year in order to pay the interest and sinking fund on the debt to America. For the most part such payment must he effected either in goods or in gold. It cannot he wholly made in the form of goods partly because our foreign trade is not big enough for the purpose, especially at present, and partly because America shuts Out the imports of goods as ninth as possible by the erection of a high tariff wall. America may not desire to take much more gold from us, but she wants her debts paid, and she may he compelled to accept our gold whether she likes to or not. Another reason why. apparently, we are less able to maintain the gold standard than in the old days is that, as a result of the war. we parted with a

large amount of our foreign invest- I ments the income from which served I to redress the unfavourable balance of ( r trade, for it was equivalent to a pa-, ment for exports from this country. The advantages of the gold standard . are partly represented by the fact '.hat t in maintaining the Xcw Yoik cxeliulige 1 at about parity the cost is lessened «>t the raw materials such as cotton, which 1 we are compelled to import from the j United States—Unit is, assuming there ( is not such a rise in the gold price of these raw materials its would offset, the , effect of the increased purchasing power (in terms ol the dollar) of the British > pound. There is the negative circumstance that had we not adopted the gold standard our credit would have sutiered very ccmsiderably in the markets of the world, while many important nations had been awaiting a lead from us in this matter, the letutu to gold has also regulated the exchange position as between Great Bt itain and Australia as well as New Zealand and South Africa, thus facilitating the operation of trade within the Empire. If is probable, liowevet, that the opponents of the gold standard are most concerned with its probable future effect upon the value of money, and from this .standpoint they can make out a good ease, in order to •maintain the position wo have taken up. ii will he necessary to retain in this market the large foreign, especiallv American balances which have accumulated in recent years, if, indeed, it may not lie necessary to attract more inoilev from other countries. This can only he done l>y offering higher interest rates than those ruling elsewhere, particularly in the United States. For this purpose it may not he necessary to give more than the rates now current. but at least the possibility has to he faced that in order to retain or atlrili t foreign money and thus protect our gold reserves a much higher level of rates may he forced upon the country. 11l that ease it seems inevitable that trailers there will he seriously affected through having to pay still charges lor banking accommodation. The circumstance might he quite temporary, hut at present trade is not so good that it tail carry an additional burden even for a short period, while if the period of dear money should he prolonged the position might lie serious. It can he argued that, so far, llie adoption of the gold .standard has given no cause lor uneasiness. Instead of the Bank of England losing gold as a result, it has re. cit ed gold, the net influx since April 29th, the date of the restoration of the gold standard, having amounted to £2.200,000; hut the question of our ahilu. to maintain the position we have tak< up cannot he properly determined by the result of a couple of months' working of the measure. As previously staled. the real test is likely to come ill the autumn, the period which in prewar days usually witnessed heavy demands upon the stock ol gold anil a consequent rise ill money rates. At present it is problematical whether I crest rates will rise in the lutiire, hut the eircumslaiieOK appear to favour an advance rather than a tall, and because of this the market for fixed interest hearing securities has lately shown some weakness. In various directions prices are now well below the highest level of the year, me movemoni having been mist p's neimee.l ill storks which are sensitive to an adverse change in the monetary situation or indications that sue!) may take place ill the tutui'e. Among these stocks are the 6 per cent, issues of British corporations and ( olnnial governments. Because ol the high rate which they hear they command a substantial premium above par. ■ hut ultimately they are repayable at 100. and although tic- securities are mostly long-dated, a present purchaser f must take into account the fact . in course of time these stocks will decline in market, value to their redemption price of 100. Because ol this they arc vulnerable to such an adverse iuHueiice a - the probability or possibility !~| n period of dourer money. The same, per e ni. Corporal imi or Colonial stocks because they slum! at a heavy discount, and although the flat yield which they afford is low compared with that given by the 6 per ’cent stocks, it is quite good when allowance is made lor ultimate redemption at par—that is, at a price well above the current quotation. Owing to this redemption clause the 3 per tent, stocks must in course of time gradually approacn par. lust as the (I per cents must gradually fall lo that level.