THE FRENCH INDEMNITY AND THE ENGLISH MONEY MARKET.

New Zealand Mail, Issue 16, 13 May 1871, Page 8

THE FRENCH INDEMNITY AND THE ENGLISH MONEY MARKET.

The “Economist” says:—We may be sure that the first effect of the indemnity will be a great bullion movement, which will cause a momentary rise in the value of money in Lombard street. How far, then will that rise be permanent ? To answer this fully we must know what the Prussian Government is going to do with the money, and that is exactly what we do not know. If the bullion so obtained be placed in German banks, and they are free to use it, it will gradually flow back again. The rate of interest at Berlin will be much lower than elsewhere, and the Berlin capitalists will seek foreign investments for their money. As the rate of interest has been suddenly raised in England, these capitalists will probably choose English investments, and so we shall soon get our own bullion back again. But we do not feel sure that the Prussian Government will thus act. Frederick the Great used to like to keep a large store in the precious metals against a day of difficulty. The First Napoleon liked it also, and all great soldiers have a certain dislike to credit which may fail when you most want it, and a stroDg partiality for gold and silver, which are sure to buy what you want in bad times as well as in good. Remembering how essentially military is the Berlin Government, and how little enamoured it is likely to be of abstract economical principle, we much suspect that a large sum in bullion may, by some means or other, be retained. It may be locked up in the Treasury, as in the United States, or the banks with which it is lodged may be fettered in some way, and obliged to keep some of it; and, in either case, our own bullion will not quickly return to us, and the augmented value of money will continue here longer than it otherwise would. But any rise in the rate of interest produced by an effiux of bullion is in its nature temporary. It tends to right itself. The rise in the rate of interest brings bullion here from foreign countries, as of late years we have abundantly seen. Even, therefore, if the Prussian Government lock up or retain at Berlin much of the bullion they obtain from us, the rise in money produced by its abstraction will not be permanent, for we shall soon get elsewhere other bullion to take its place.