THE EXCHANGE FUND.

Manawatu Standard, Volume LVII, Issue 179, 30 June 1937, Page 8

THE EXCHANGE FUND.

By taking power to add to the Exchange .Equalisation Fund, the British Government is but strengthening its devices for the protection of internal as well as international economic conditions in conformity with the tripartite agreement entered into with the United States and France some time ago, and it would appear chat although the operations of the Fund have, reached mammoth proportions-, and essentially remain secret, a prudent step is being taken, if judged on the past highly successful operations connected with it. The Fund, as originally established in 1933, stood at £ISO,DUO,OUU, and was increased to £050,000,000 in 1933. Since the latter date it has not been deemed necessary to extend it, but now an additional £200,000,000 has been provided tor. it was probably the size of this addition, and not the purpose of it, that caused apprehension among Opposition members in the House ot Commons, for it would indeed be farcical were they to oppose it on the ground of policy, because the Opposition in the past have condemned the very actions which the Fund is designed to frustrate. The aim of the Fund is to prevent sterling exchange rates from fluctuating so widely as to upset the internal economy of th 6 country and cause a serious swinging about of the domestic price level. Further, in connection with the tripartite agreement, the Fund is drawn on to buy exchange or short-term securities when it is deemed necessary to prevent the market from becoming glutted with offerings. When, the demand rises or rates threaten to move too rapidly, the Fund sells. Capital movements have taken place of late on an immense scale, and it is worth noting that in the United States the reaction to the British decision has been most favourable, for it is likely to check the flow of gold into America. London has been most disturbed in recent weeks by a large inflow of capital from other, countries. Were this on account of ordinary trading balances the situation might be viewed differently, but, as the British Chancellor points out, it is designed for quite another purpose, and it is not difficult to guess aright that he refers to currency manipulation and speculation. It is because the capital movements are so large that the Exchange Fund must be so largely extended. It has proved a valuable international “cushion” for reaction on exchanges, and there is a hint, despite the official secrecy, in the tone of the Chancellor’s latest statement, that the Fund will show a profit.