The Guardian And Evening Star, with which is incorporated the West Coast Times. WEDNESDAY, JUNE 2, 1926. BRITISH MONETARY POLICY.

Hokitika Guardian, 2 June 1926, Page 2

The Guardian And Evening Star, with which is incorporated the West Coast Times. WEDNESDAY, JUNE 2, 1926. BRITISH MONETARY POLICY.

There lias been a good deal of controversy pro and con in relation to the British monetary policy as affected by the restoration of the gold standard. The latest comment noticed on the subject is from the April review of the bank, London, which contains a thoughtful article dealing with the monetary policy of the Bank of England since the restoration of the gold standard. In this, the writer seeks to establish two main points—one, that the Bank Bate is not tineffective weapon for controlling credit that it was before this war; and the other, that, the policy of the Bank of England in dealing with the very difficult position created by the restorntion of the ”;old standard lias l>eon wonderfully successful. In order to establish the latter point, three different periods are taken, in which the movements in gold and in the deposit* of the Bank of England are analysed. The first period was from April 29th. to August sth., 1925, when there was an almost continuous flow of gold into the Bank, mainly from Holland and Russia. But although this inflow added £11,000,000 to the Bank’s reserve, it was not allowed to give rise to credit expansion. It .was fore soon by the Bank that to permit of a large expansion -of credit on the basis o' somewhat unusual and fortuitous gold imports would only give rise to difficult business conditions when creditcontracted as a result, of the inevi able reverse movement. The Bank therefore, set itself to neutralise the effects of the incoming gold by reducing its securities by £11,000,000. A the gold came in, so the Bank sold investments or called in loans, the result being that the total deposits in the Banking Department stood at the same figure on August sth. as o April 29th. The second period was from August sth. to November 18th last, when gold was continuously flowing out. The outflow did not, in the opinion of the Midland Bank writer, warrant a restriction of purchasing power in this country, and the Bank of England "pursued the course o f utmost wisdom in determining its credit policy,’’ It refused to be -

on by panic into rigid adherence to some minimum reserve ratio, and proceeded to buy investments or increase its loans to the market to the extent of the reduction in the reserve. The third period, from the middle of November to the end of February was one of much less pronounced movement, and in the final result the deposits of the Bank of England showed no change as between April 29tb. 1925 and the end of February, 1926. This fact, the review says, emphasises the wisdom of the Bank of England’s policy, for it indicates quite clearly the vital necessity under the then existing conditions of maintaining and even increasing the accommodation granted to a somewhat debilitated trading and industrial machine.