FRENCH GOLD

Rotorua Morning Post, Volume 2, Issue 246, 8 June 1932, Page 6

FRENCH GOLD

EXTENSIVE IMPORTS ' IMPORTANT FAGTOR IN WORLD ECONOMIC RECOVERY. REVTEW OF POSITION. Among the many factors operatirg agains th economic seeurity of the world at large is the gold situation in France. The fiow of imports of the metal, which has been accelerated in the last six months, however, has almost reached its limit, and gold appears to be at the zenith of its power. In its latest review the Midland Bank deals with the effect of the mfiow of gold to France and the possible outcome. Its reasoning indicaies that the so-called "natural" effeels of the gold inflow may prove to have been deferred, racher than permanently offset. If, on this occassion,. its premises prove to he correct then appreciation of gold has reached ita zenith, and commodity prices should rise. And the key to the future of gold prices is the state of affairs in France. Approaching its subject the bank points out that, although U.S.A. holds about 900 million pounds of gold against 600 millions by France, the metal has been flowing easlward steadily during the last few months. Causes are twofold: — 1. Realisation of existing short-term foreign assets. 2. A credit balance of foreign payments over new long-terin investments abroad. In 1929 the greater pare of tne inflow was caused by realisation of foreign short-term assets by the Bank og France and other French banks To a material extent, also, gold was exported to France in settlement of her credit balance of payments. In 1930 the course of events was different. Foreign assets of the Bank of France were practically unchanged, but other French banks and the Treasury continued to realise their assets. Meantime, the balance of payments favoured France. dn 1931 the Bank of France, and other French banks, continued to realise securities, the credit balance of payments, although smaller continued to favour France, and foreign purchasos of francs were made on a large scale as a result of shaken confidence in other currencles. No Longer Favour able. Durijig 1932 realisations have. continued, but the balance of payments no longer favour France, and, as shown in the accompanying table, comparatively few short-term foreign aaeets rem«m to be realised Now, during this period, there was I no corresponding movement in money to supply to a material degree. It may he summarised as follows: 1929. — The addition was lexs than i the gold inflow. 1930. — It was about the same. 1931.— It was less. 1932. — Gold entered but notes fell At this stage three salient facts, j which are supported by the figures of i the accompanying table, emerge. i 3- There is limited scope for furi ther realisation of foreign funds by | the Bank of France. j 2, It is unlikely that other French i banks are large holders of similar j funds. j 3. The balance of payments is not j %ucn tts to stimulate or provide a | further heavy inflow. i Now, the effect of the accumalation j of gold in any centre is, so-mer or ; later, seen in the commodity priee. I Tn pre-war days gold was never ! allowed to accumulate exces3ively in j aiiy one country, except in the East. j Tf stocks increased in Great lirii ain, j money became plentiful, it was clieapj er to borrow, and it was more readily j expended, with the result that commo- ! dity prices moved up. Sterling be- ; came less valuable in terms of ; other currencies and it became j profitable to ship gold abroad, j price levels of various countries were j nrought into equilibrium, and a due j distribution of gold as a basis of crej dit and currency supply was aehievj ed. j The question arises — why has the j gold inflow to France failed to raise j French commodity prices and thus j bring about its own re.iistribution ? j The reasons are fourfold. \ 1. A large part has not added its j full quota to the supply of money. [ 2. French internal prices were low j m reiation to those outside. \ 3, Savings were under-invested. [ 4 Hoarding was practised. | Jt will be noticed, however,, that I the note issue at the moment is lower [ than at December, 1931. And the I observations of the bank are direct j and to the point, at the same time \ being the kernel of its reasoning. i They may be summarised as fol- \ iows: — : 1, Hoaidiiig can be indulged only j when there is a surplus income over : desirable expenditure. [ 2 For hoarding to continue, geneE ral prosperity is needed. It is not : now present. \ 3. Absence of prosperity will au- : tomatically bring out hoarded notes. E 4. Although the note issue is lower, \ the active circulation is prohably highi er. = This is suggested by the fact that E French wholesale prices are higher : than in 1931, although this is influen- \ ced (no doubt, largely) by import re- : strictions. \ The outstanding facts are that the j influences for further heavy inflow of \ the metal no longer exist, and prices \ are rising in France. In other words, : it would appear from the latter that i natural effects of excessive gold acj -cumulation are beginning to he seen, | and, carried to its logical conclusion, j the result — if its achievement be perI mitted — will not differ from what should be expeeted in theory.