STABLE CURRENCY.

Putaruru Press, Volume VII, Issue 304, 5 September 1929, Page 1

STABLE CURRENCY.

MONEY DOCTOR IN CHINA. Scientific Practice. How It Worked Out. A quarter of a century ago a young American economist, Edwin W. Kemmerer, put forward sugges- 1 tions for the stabilising of the silver currency of the Philippine Islands. After their capture from Spain, the economic life of the islands had been disorganised and the new American Government was anxious to bring order out of chaos. Dr. Kemmerer, I at that time a very recent graduate I indeed, worked out suggestions by which the depreciated silver money f was linked up with the stable currency of America. The amount of currency issued was strictly regulated by reference to a gold fund established in American banks. When trade was good and exports credits built up the gold fund, more currency was issued in the Philippines to take care of the increased trade. When ’ exports dwindled currency was called in. I

An Indian Device. This device of the gold-exchange standard was simple and effective. It had been originally worked out by members of that great service through which Britain has governed India. In the ’nineties a series of experiments was cautiously made, as a result of which the rupee was stabilised on the basis of a gold fund in the Bank of England. The new device, based as it was upon a new application of sound economic principles, attracted great attention among economists, though its importance is even yet hardly known outside a limited circle. The classic description of its early working was written by a young Cambridge graduate who was then teaching at the University of Allahabad, but who was afterwards to become widely known as Mr. J. M. Keynes, chair- j man of the Inter-Allied Financial Commission during the war, and author of “ The Economic Consequences of the Feaee.”

The Career of the Money Doctor. Dr. Kemmerer therefore took this device from India and applied it to the Philippines. It worked and has continued to work ever since except in the brief periods when political control has tampered with its basic principles. Kemmerer continued to specialise upon the problems of money, and in his university chair at Princeton gradually built up a reputation as a * money doctor.” Business men in the United States are apt to speak of him in terms of awe and admiration; but he himself would be the last person to claim any other powers than those of a clear- welltrained mind and a firm grip of economic principles. A rather small, very modest person, with smiling blue eyes and a complete absence of intellectual arrogance, he yet has a directness and clarity of thought and expression which, combined with simplicity, gives him great force. When the writer met him at a ship’s

gangway a short time ago, two desires were uppermost in his mind—first to have a swim again at Waikiki and second to get from a felloweconomist all the information possible about facts and personalities in China. He had direct access to all the great public figures of China. His journey to China has a fascinating interest despite its lack of publicity. Since he formulated his first suggestions for the Philippines, he has been called in to apply the same simple financial remedies in many other lands. Most of his public work has been in the silver-using countries of South America; but the South African Union joined him with the Dutch economist Bissening in 1924, and has followed his advice. Poland also preferred, perhaps for political reasons, to call him in for consultation, and float American loans, rather than accept the same advice from the Economic and Financial Section of the League of Natidns. The invitation from China was his twelfth and greatest mission.

A Chinese Puzzle. Only those who know something at first hand of China’s currency chaos can fuliy realise the complexity of ’ the task. Certain obvious facts may, however, indicate the chief difficul- | ties in front of him. The first, cf course, lies in the fact that China uses a sliver standard, and that there have been great fluctuations in the price of silver in relation to gold. Gambling in silver exchange has hurried the fingers of almost all foreign residents in China at one tin.? or another. The constant fluctuations lend a speculative element to all Chinese trade.

This, however, is only the beginning. There are several silver coinages and some of them are depreciated. Moreover, the subsidiary coinage used t y the common people is depreciated in varying degree all over the country. Even the coppers and the strings of “ cash ” in which the coolies and the peasants buy and sell have been depreciated—a cruel wrong upon an ignorant and helpless people. To centralise and stand- | | ardise these various currencies is a baffling task in itself. To the age-old trick of debasement, modern China has added the I modern trick of over-issuing paper money. There is no centralised banking system. Certain foreign banks are strongly entrenched and conservatively administered; but even upon their paper there is a local exchange charge. There are Chinese banks also which are firmly organised. Some of them carry the deposits of the foreign-controlled Chinese Maritime Customs, and have branches all over China. Others have local prestige. Still others unfortunately have over-issued paper money. Among these are branches of the Bank of Qhina, which in 1924 was the chief means by which Mr. T. i

V. Soong, the brilliant Finance Minister* of the Canton Government, made possible the Nationalist advance to the north. Mr. Soong is now Finance Minister for the Nationalist Government at Nanking. One of his sisters is married to Chiang-kai-shek, the President and generalissimo, another to Mr. K. H. Kung, a lineal descendant of Confusius and Minister of Commerce; the third is the famous widow of Sun-yat-sen, who has just returned to Nanking from her self-imposed exile in Moscow. Mr. Soong is himself a distinguished graduate of the Harvard University School cf Economics. He is essentially* conservative in his finance. His great ambition is to reorganise the finances of China upon efficient modern lines. To help him to do so he has called in the help of Dr. Kemmerer. The Prescription.

The Kemmerer mission totals seventeen, including many distinguished economists who also have had practical experience in government and business. One is a specialist on tariffs, another on railway finance, another on budgets, still another is a practical banker. They are all young and all “ theorists.” Indeed, Dr. Kemmerer, in explaining to the hard-headed Chamber of Commerce at Honolulu the principles upon which he chose his helpers, startled them by saying that his first requirement was that every man must be a dreamer.

If this is the first requirement it is not the only one. When he began the task, he anticipated at least a year of heavy grinding detailed work, involving travel, conference, analysis, criticism and finally constructive suggestions. There will be no voluminous repoit. The whole work of the party will be summarised in a few drafts of regulations for a central banking system, a scientific tariff, a model budget," a new set of railway accounts, and »o on. When these are prescribed, the task of the money doctor is done. He leaves the practical application to the responsible statesmen who employ him.

At this point the wiseacres of the foreign community shake their heads. Knowing the old China with its universal “ squeeze,” corruption and ineffciency, they have scant hope of any very honest or scientific finance. They may be right, but they will not always be right. There is, despite all the pessimism of the practical folk, a new spirit in China. It is sometimes

disconcertingly anti-foreign, often enough, too, it is superficial and impractical; but a fire cf new-born patriotism runs through it, and it will continue to have its victories. Given sympathy and support from the leading foreign powers and their economic magnates, it is quite within range of possibility that within the next few years China will achieve a measure of financial reform that will confound her critics. If she does, the prospects of trade and industrial development that will thereby materialise will naturally accrue in greatest degree to those who have stood to help rather than scold Young China in its immaturity and 'oexnerience.—J. It. CondlifTe, in the Wellington Evening Fost.