The Guardian And Evening Star, with which is incorporated the West Coast Times FRIDAY, DECEMBER 11, 1931. THE FAIL IN STERLING.

Hokitika Guardian, 11 December 1931, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times FRIDAY, DECEMBER 11, 1931. THE FAIL IN STERLING.

O.vu of the most important, and certainly one of tlie most ominous, features of the financial situation at Home is the recent heavy fall in the value of the British pound sterling. When Britain abandoned the gold standard toward the close of September, says a northern paper, the immediate and inevitable effect of the change was a rapid decline in the value of the British pound measured in gold. But this carried with it an adverse rate of exchange'—that is to say, the pound sterling naturally tell in value as compared with foreign currencies still based upon gold, such as the franc and the dollar. To take the American currency as an illustration—the normal rate of exchange between Britain and the United States is 4.86 dollars to the pound, making the dollar worth about 4s Id. a

month after the gold standard was abandoned American exchange was quoted at 3.955, making the dollar worth ss, and during last week me rate ha.s fallen to 3.285, which moans that the dollar is worth 6s Id in British money. At first sight this rapid and violent decline in the exchange value of British currency might appear to indicate that financial disaster on a colossal scale is threatening Britain. But the “Times” says that “the amount of business being transacted is comparatively unimportant,” and a limited market is extremely sensitive to small fluctuations in supply or demand'. Also, (the fall in. the exchanges means a loss to the country only in regard to the payment of debts measured in gold or the purchase of goods from foreign countries still on the gold standard. But in regard to the balance of trade the excessive importation of foreign —goods can he checked by appropriate fiscal restrictions. No doubt the fall in the value of a national currency as Compared with gold has an injurious effect on the country’s credit and financial standing. But this, again, depends largely upon circumstances not directly connected with the rate of 1 ' exchange or the state of the money market, In the case of Britain, there is no doubt, that the advent of a strong National Government, with a sound administrative policy, will prove a most effective aid to the restoration of the national credit. Moreover, Britain has now declared for the limitation of imports hv means of Customs duties, and this, by restricting purchases of foreign goods, will check the demand for exchange on foreign centres at Home and will help to restore the balance in favour of sterling. Curiously enough, the mere promise of Protection lias temporarily depressed sterling by inducing importers to make large purchases of foreign goods with the object of evading the threatened duties, and in all probability this j fact, combined with heavy seasonal demands for the coming Christmas, its a principal explanation of this phenomenal depreciation of the British pound. Also, the continued withdrawal of foreign credits from London, as a sequel to the recent crisis in European finance, has fctill further intensified this fall, by increasing the i demand for foreign currencies at the expense of sterling. But all these influences are merely of a temporary character, and we believe that the “Times” is fully justified in its assurance that at present Britain’s financial position gives no cause for any serious alarm.