The Guardian And Evening Star, with which is incorporated the West Coast Times. FRIDAY, AUGUST 9, 1929.

Hokitika Guardian, 9 August 1929, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times. FRIDAY, AUGUST 9, 1929.

ADVERSE FOREIGN EXCHANGES. Undoubtedly the most unsatisfactory feature of the financial world at present, says a London Banking Journal, is the adverse state of the principal foreign exchanges. In the case of European rates the condition is a reflex of. the depreciation in sterling in terms of Americans dollars. This is to be attributed to the fact that London is still the financial clearing house of the world, which means that if countries such as France, Germany, and Italy have to make payments to America the operation is effected, at least in part, through London, sterling being sold for the purpose of buying dollars, An important effect of all

this is that the Bank of England has lately lost a considerable amount of gold withdrawn for export to America, while the major portion of last week’s arrival of bar gold from tho mines was acquired for the same quarter. Fortunately, the Bank is in an exceptionally strong position, still holding £lO,000,000 more gold than at the beginning of the year and £8,000,000 more than at the commencement of 1928. Presumably, therefore, a considerable further sum could be spared for export without creating anxiety that protective measures in the shape of still higher money rates will be necessary. While there is, apparenty, no occasion for alarm, the unsatisfactory aspect of the of the whole business is that from an economic standpoint, and certainly as regards the settlement of trade balances, these heavy .movements of gold are unnecessary. There is, indeed, something rather absurd in the circumstances which have led up to the present position. The American. Federal Reserve Board formed the opinion a good many months ago that there was too much speculation in the United States, and that the movement tended to divert credit from legitimate trade channels. Therefore, an attempt was made to restrict the supply of credit available for Stock Exchange purposes, with the result that in New York, the business centre of the most prosperous country in the world, rates ranging up to 20 per cent, were paid for Stock Exchange loans; Such a figure would be considered excessive in a European country seriously impoverished by the war, but it has been paid in a country with tremendous natural resources. This high charge naturally attracted credits from various other places outside, and the tendency was for part of the credits to be shipped in the form of gold. European State banks, alarmed by the prospective drain upon their gold holdings, inflicted higher rates for money in their own countries, with, probably, a prejudicial effect upon their industry. There has been, indeed, something in the nature of a battle of bank rates since the position in- America became abnormal. The position outlined above is aggravated by the necessity of remitting funds to America in payment of war indebtedness, for these and other payments by Europe are not neutralized now as they were a year or two ago by the amount of foreign loans issued in America,- while the latter country, bv imposing high tariffs, discourages the entry of European goods into the States. The position is unsatisfactory also because of the small measure of success that has attended the efforts of the Federal Reserve Board to check Stock Exchange speculation. That movement has subsided a good deal ,but it may be doubted whether the circumstances is wholly due to action by the authorities. At least some important interests on the other side do not accept the view that the speculation in stocks, which lias been the most important feature in the financial world of America in recent years, has diverted much money from trade. Certainly, there is no indication of such a development in the condition of almost unparalleled prosperity which jAmerica has enjoyed for so long. At the same time, it is scarcely open to ,doubt that there lias been too much speculafon in America. Some people might regard the situation that has now arisen as an argument against the adoption of the gold'standard. If, for example, Great Britain had not adopted that measure, gold would not have left this country when the exchanges became unfavourable to sterling. Admittedly, the important step taken by Great Britain in April, 1925, was attended by some disadvantages, but most economists agree that those disadvantages were more than offset by the improvement in the credit of the country which followed the adoption of the rgold standard. That improvement was reflected in a rise in sterling until developments in America produced disturbing effects in the financial centres of various other countries. It may be that the State banks of Europe adopted the wrong policy in seeking to prevent gold exports by the imposition of high .money rates, and that it might have been better had they allowed a really large amount to go. America does not need the metal, and the authorities there have sterilized the gold hitherto in order to prevent it from enlarging the credit structure. It is possible, therefore, that the receipt of several more millions would induce the authorities in America to take steps for the purpose of preventing a further influx, though it is not clear what shape the preventive measures would take.