THE NOTE ISSUE AND INTERNATIONAL EXCHANGE.

Manawatu Herald, Volume XLII, Issue 2179, 21 September 1920, Page 4

THE NOTE ISSUE AND INTERNATIONAL EXCHANGE.

At I lie weekly meeting of the W.B.A, on Thursday evening, Air Ayrton continued his discussion on the system of exchange. After pointing out that the difference between cheques and notes is that the value of the former depends on the credit of the individual, and that of the latter on the credit of the bank, Ihe lecturer referred to the situation of small industries at the beginning of the 181 h century. A

man with 20 employees then would be considered in a large way. The processes of trading were simple. Now we have large commercial institutions such as the Baldwin Locomotive Works, employing To,ooo persons, ami large trusts employing over 100,000. With this growth of. industry and production the means of exchange and financial operations generally are correspondingly large. The market is the determining facto) - of the size of a business structure. Where the market is local the industry is local. When (he market extends to the city and the nation the business structure is greater. Now the world market determines the size of many businesses. Two days operating of the machinery in the textile industry in England provides all the wants oi. (he whole of the British people and the colonies with their requirements in woollens and cottons, the duel' endomers for the former were Austria, Germany and the Balkans, and lor the latter the Bar East and Africa. With this great increase in industry the use ot cuius is insufficient, and payments are made by cheques and 'other commercial paper. The primary industries are agriculture and mining. These provide the raw material. Then follows manufacture which gives yon I lie finished article, and this hanow grown to such an extent that all the ideas we have learned in conned ion with the metal coinage have been upset. At lirsl banking houses were in charge of families. 1 bus we heat <d Smith's Bank, Barrs Lank, Beckett’s Bank, and Lloyd’s. But with large scale production family hank.- owing to the greater need for hanks ow ing to the greater need for credit facilities. B-ually English methods of banking have had a reserve of 20 per cent, ot cash to meet the notes on issue. .During the war this reserve was reduced to o per cent. It was pointed out by Brofes.-or Nicholson that the lieliggerent countries during the wai increased their reserve of gold onethird by withdrawing it from circulation, hut at the same lime the notes were increased twenty-told, and the resulting situation is much less favourable. In some countries the gold reserve has been reduced to 1 per cent. Passing from national to international exchange, the lecturer pointed out that in Great Britain 450 million Bradbury notes are in circulation, ami at the outset of the war there were 180 millions of gold coins to meet these notes. In other European countries the note issue has been so increased that it lakes a, sackful of them to purchase a Iml. The notes have practically no purchasing power in these eouniries, and the tendency is to revert lo the system of barter. The gold ]ms been withdrawn from eireulajion, and is now used to discharge the balances of international trailing, The raw materials from one connfry are exchanged for the manufactured articles from another. The price of the one is set against that of the other, and the balance over on either side is paid for hy the gold reserve. No other mean- has been devised for paying these balance.-, Baiter currency would he no u-e lor it. I.heie is little use for the’New Zealand note in America. The Bradbury note in New Zealand is worth only about 15s. In consequence of the balance of trading during the war being in favour id' America, gold was being transferred to America until that country had too much and the prices of commodities greatly increased in consequence. America hud too much gold, just a- wo have too much paper. (jm-cqiienlly America began lo tell the debtor countries that it would he better not (o send gold, but articles which they could barter, so that prices might sink to their normal level.

WliL'ii individuals cannot pay cash, and have to use credit, interest is charged, and the same thing is done in international trading, and thus credits were extended until the •stage has been reached where the rate of exchange is unfavourable to the debtor nation, so that: now a pound sterling in Mew Zealand is worth only 13s 4d in America. But on the other hand, the rate of exchange between Central Europe and. Great Britain is still more unfavourable against fhe former, so much .mi that three Austrian marks in London are worth only three-half-pence, though formerly the mark was worth Is, To bring about equilibrium Great Britain will be forced to have trading relations with Europe. One of the chief advantages of a gold over.a paper currency is that the quantity of gold procurable is limited, whilst paper can he increased indefinitely at a minimum cost. Also gold has a value in the mechanical arts for which the material of paper currency would be useless. Nevertheless the use of commercial paper is a present day necessity. Without it modern social life could nut be carried on. The only complaint against it is its excessive quantity. It should he issued on such a basis that you could turn it into gold at the bank on demand. At the best it is only applicable for national and

domestic purposes. It can never under present conditions- be made acceptable as international 'currency. Perhaps some system will ultimately lie adopted hy which a general monetary system can he applied to all countries. We live under a system of mono-metalism, by which gold in normal times is the standard of value, and the legal lender. In America bimetalism is advocated, and it is claimed that using gold and silver jointly as the standards of value ,fluctuations in regard to prices will he prevented. Seeing, however, that it is (ho American silver kings who advocate this system, the evidence in favour of it i- not unbiassed. Professor Marshall has suggested bimetalism. Bars of gold and silver would be held in international custody, and these would he drawn upon by the respective conn tries depositing them. Pound-,, francs, or dollars could then be issued in proportion to the liars deposited by the respectLv6 nations, if this method were adopted and the coins or paper in circulation made proportionate to the bars deposited (hey would he accepted for international payments. There is no probability of Ibis being adopted in the immediate .future, tint ultimately some such system will be devised.

The former method of interfering with the currency was by mixing (he metal with a baser alloy. The modern method is hy issuing 100 many notes. The signs of depreciation are, firstly, gold commanding a premium; secondly, rise in the rate of exchange; and thirdly, Ihe disappearance of ihe metal coins resulting in the soaring oi. prices •.vithrmt any limit except, people’s abilitv to pay. One remedy is lo cease the issuing of notes, and another remedy suggested is the increase of production. This is right, but we should not produce indiscriminately. The product ion should he (-onfined mainly to food, clothing and housing; (he neees-aries of life ml luxuries. If we faced the position heroically, we would destroy the excess of notes in circulation until wc got them down to a reasonaide limit. We must have enough, but we should not he deluged, with them. Three methods of remedying llm present position have been proposed —the Gimliffe commission recommended a return to the gold slandurd; Sir Edward Holden considers a safe basis would he .03 of paper in circulation for every 01 oi gold. Arthur Kitson recommends llu: free use of credit to stimulate imlu-lry, and that it should he the right of all, instead of the privilege i. f I lie hanks.

Nexl Thursday evening Mr Ayrton will lecture, on the economies of distribution, rent, interest, pro lit, and wages, and as these subjects are of general interest and importance, it is Imped there will lie a good attendance.