WHEN GOLD IS A NUISANCE

Hokitika Guardian, 20 February 1928, Page 4

WHEN GOLD IS A NUISANCE

(By TIIF CITY EDITOR of the London ” Daily -Mail ”.) Why has 12.000,000 of gold been sent from New York to London? Ik'cause the Cnited States is using, to linaii'i' the economic reconstruction ol the wiirld. some of the enormous financial resources she acquired from the rest nl the world during and alter the war. Before the war it was London that linamed the world’s trade and development, whether by short-term credits, represented by bills of exchange, or by long-term loans, repersented by bond and stock issues. International remittances are usually made by paper transactions—that is, by cheques or hills of exchange sent through the post or by cable transfers carried into effect by entries into hank ledgers. But these are essentially exchange operations, and there tomes a time when the demand for remittances in one direction, say from New York to London, exceeds the demand in the other, from London to New York. Put in another way, the demand in New York for sterling—that is. money in London—is greater than the demand in London for dollars—that is, money in New York. This is what has happened recently, and owing to the extra demand for sterling the exchange dealers put up the price of the I’ sterling expressed in dollars. i If the L sterling continues to rise [ there comes a time when, despite the I cost of freight tint! insurance and the [ loss of interest, it becomes cheaper to I ship gold from New York to London I than to huv exchange in the market. I This shipment is effected not by inI dividuals but by big banks that enmI maud large sums ol money and have I the necessary machinery for arranging I the transport. 'I ne transport of gold I from New ) ork involved the cunveyitnio of (lie gold by road from the vaults to the landing stage, its shipment in a Cunard liner to Southampton. its carriage in special vans on the Southern Railway In London, and its conveyance by fund in biilli.m ears In the Bank of Kuglnnd. The C ity is not entirely happy over this accession of gold. 11 it is kent here it will form the basis lor an expansion of credit. Money will tend to become cheaper. But the demand for sterling that has resulted in the transhipment of gold is due not only to long-term American lending to Kurope ; but largely to the temporary employment of American money in London, where it earns higher rates of interest than it would earn in New York. This is by no means an uumixed blessing, particularly as enormous French balances are employed in London. These foreign balances might at any time he withdrawn, and in the absence of agreement between the authorities they constitute a menace to our money I market. The best gold influx is that which results from an increase in our exports the payments from which increase the demand for sterling in exchange mar- t kets abroad.