The Guardian And Evening Star, with which is incorporated the West Coast Times FRIDAY, JUNE 17, 1932. EXCHANGE PROBLEM.

Hokitika Guardian, 17 June 1932, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times FRIDAY, JUNE 17, 1932. EXCHANGE PROBLEM.

The proposal of the British 'Government to inaugurate the Exchange .Equalisation Fund with a credit up to £150,000,01.0 wars received with general approval by tile British Pr««s; It. was■ taken as announcing the will and the power to prevent extreme fluctuations in the value of sterling in exchange. The intention became evident after Great Britain left the gold standard. Though the Bank of England worked for stability in the early weeks eubseqeunt to the suspension solely through the indirect means of keeping the bank rate high, it has since the opening of the present year bought foreign cur- ' rency in order to repay the foreign credit** borrowed last year, and as at the same time the current balance of payments wm4 favouiuble— demand to j Imy pounds.ww greater than the offer j qf pounds in the market—it held the rate at a fairly even figure against j gold without exactly making this ita i objective, the “Manchester Guardian Commercial” considers. During March and April, however, the Bank was notoriously a buyer of foreign exchange for the express purpose of keeping the gold or exchange value of the pound down, and. the same motive would be given for the Treasury taking an interest in gold offered in the bullion market. The object of the £100,0C0,UOO fund is to enable the Government through the Bank t>o deal far more effectively than it has done hitherto, either with an unwanted inflow of capital, or if the alternative should again arise with an outflow of capital | from Great Britain; No details are to | be published of the, assets to be held I on account of the Exchange Equalisation Fund. They may comprise gold, | sterling, or foreign exchange, and as i the proportions in which the investi merits are held from week to week i will , not he known it will be impos- , silyle to gain a clue from the fund as ! to the manner in which the Bank is operating. Market movements, can alone be relied on for gaining an inkling. It will he an effective weapon with which to circumvent the activity of’-foreign speculators whose operations have proved a source of embarrassment. For some months past large syndicates of foreign speculators have been speculating in sterling exchange, and it is their bull and bear operations which have constantly proved an unsettling' factor in both American and French exchange with London, The loan which will supply the money required for the fund, it is believed, will be raised by the sale of Treasury bills as and when required. Foreign aid will not be resoited to. Any loss on account of the Exchange 1 Equalisation account will be borne, by the Exchequer; similarly any profits on it will accrue to the Government. French opinion in view of French experience in 1926-28 in stabilising the franc is interesting. The “Journal des Dehats” says that in practice the fund will he 1 used more to prevent an appreciation in the exchange value of the pound than to prevent a depreciation. The use of the fund will show speculators that they will stand little chance of seeing wide movements in either , direction, for it is clear that the intention of the British Government is ' to limit fluctuations. No matter how shrewd the Bank of England and British bankers may be, it- is open to doubt whether Britain will succeed in avoiding the pitfall which France met between 1926 and 1928-that is to say the piling up of foreign currencies.