The Stratford Evening Post WITH WHICH IS INCORPORATED THE EGMONT SETTLER. MONDAY, FEBRUARY 1, 1915. WAR AND FINANCE.

Stratford Evening Post, Volume XXV, Issue 26, 1 February 1915, Page 4

The Stratford Evening Post WITH WHICH IS INCORPORATED THE EGMONT SETTLER. MONDAY, FEBRUARY 1, 1915. WAR AND FINANCE.

To most ordinary individuals the] mysteries of finance and the finer' points in banking are a sealed book. The currency question, gold reserves, bank-note issue, and such matters, may be more or less airily discussed, but about them the great majority knows really nothing. In the commercial columns of the Lyttelton Times recently there appeared an illuminating article by Mr E. M. Cooper, who, writing from London on “Finance and War,” makes it very clear that German financiers were looking well ahead in anticipation of | the present conflict. After discussing the possible duration of the struggle and other aspects, he refers to the important question of gold reserves. In doing so, Mr Cooper points out that while it may ho to the interest of any one nation to j use its gold reserve, it’is not to its interest that other nations should use their reserves simultaneously. For what is to become of the gold? England may in difficult times be glad of something more of it than usual. But if the State Banks of Europe were to disgorge hundreds of millions what would Britain do with them? What effect would it have upon prices and the standard of living? At the end of July, 1914, the following stocks of gold wore held, amongst others:—

Bank of England ... 38,000.000 Bank of Franco ... 106,000,000 Bank of Russia ... 100,000,000 U.S. Treasury ... 215,000,000 Bank of Germany ... 08,000,000 War R esorve, Bank of Germany ... 10,000,000 Bank of Austria ... 51,000,000 Argentina ... ... 10,000.000 Brazil ... ... 10,000,000

The authority quoted proceeds to say: Immediately on the outbreak of war all these institutions, with the exception of the Bank of England and the Treasury of the United States, | formally suspended the payment of! their notes (against which gold is, held! in gold. Even the Dominion of Canada suspended gold payments. In spite of its huge gold stock the| United States Treasury refused to per-, mit the free export of any consider-, able amount of gold. In short, all tho countries in question hoarded their gold. These reserves were held for some purpose, besides the psychological advantage to he derived from the reputation of possessing considerable sums of gold. What can 1 this purpose bp except the intention of parting with the gold al some later stage of the war, when the importation of goods from abroad is urgently

necessary ami otherwise unattainable? A point may very easily come, and come suddenly, when it is virtually impossible to make any purchase at all, unless something is exported to meet it. And nothing may be readily available for this but gold. Even in the case of Germany, there are countries from which it is physically and geographically possible for her to purchase goods j it is important not to exaggerate the degree of the com-' mercial blockade. But how is she to pay for them? By gold. Circumstances may force countries on either side in the great combat to disgorge their gold. Month by month we may expect a dribbling stream of gold from Russia, Germany and Austria, and later on, top, if the struggle is prolonged, from France as well. Who is going to take this gold? Where is it going? It comes on a world surfeited with gold, a world urgent for goods, not money. Naturally new demands are not likely to arise now, or for some time on account of the war. America, by a reformed system of banking, is beginning to economise her use of gold. Egypt has also attempted to economise the use of gold by a. wider paper currency. China cannot absorb it, and India cannot take more than usual, if as much. The capacity of countries like Canada and New Zealand to take gold depends upon their power to borrow from abroad. At the same time the gold mines of the world continue to produce at the rate of about .€'10,000,000 a year with most of the former outlets for it closed. The illusion that all we want for safety is much gold may ho dispelled by the unanswerable force of events. The coincidence of an extreme abundance of money with an extreme urgency of goods must necessarily bring with it a greatly diminished purchasing power of the former. The very prosperity of Britain and the diminished productive power of Europe may have the effect, if .this war is a long one, of sending up prices to an alarming extent—possibly 30 per cent. This question is happily being consid. ered in responsible quarters, and it will be vital as well as interesting to watch the results of such an unprecedented financal position. The British Government has met financial I difficulties with boldness during tiro present war, but it will need all its foresight .and courage to stay the evil effects of prosperity upon the standard of living of its people.