IN
10
THE HONGKONG TELEGRAPH. FRIDAY, OCTOBER 30, 1936.
OFF GOLD-and ON to
PROSPERITY
by Francis Williams
The French Chamber this
month the funeral service was held of a great myth myth which died in October, 1936, but which had receive Its first fatal wound five years earlier.
None need regret its death, only that it has been so uncon- scionably long in dying.
For the myth of the Gold Stand- ard from which at long last wo are free must go down into history as one of those great illusions whichi. cost on intolerable amount in human suffering before the world and the sense and courage to shake itself freo.
The old Gold Standard which has dominated financial conscious- ness so long and taken in ita time 40 inrge a toll of the world's wealth Is ended.
£ £ £
It is unlikely that any attempt will now be made to revive it, for not only has the realisation of its defecta soaked Into the públic con- aelousness, but what is from the standpoint of practical affairs of even more importance-a new technique of monetary control to replace it has been evolved by Treasuries nad Central, Banka,
That the Gold Standard has had to be abandoned in what was for no lang its securest cltadel, France, Es alguileant. But more significant
in that a new system, the system
of managed currency internation- ally controlled by powerful Ex- Change Funds, is set up to replace
1!
The most important fact to-day is not that France had at long last decided to give up her defence of the old Gold Standard, and de- value her currency, but that she accepts-ns Britain accepted be- fore her the new technique of variable exchange rates kept under control by the deliberate action and management of the Btrite.
What does this mean in terms of ordinary affairs? What in its im- portance to the ordinary man and woman of the world?
£ £ £
The Gold Standard was n zyn- tem of obtaining stability in the exchange value of the currencies of the world by giving all those currencies a fixed value in terms of one intrinsically valueless com- modity-Rold.
That there ahould be inter- national stability between cur- rencies is clearly desirable. If thero in no stability, world trade becomes difficult and may be im- possible.
For example, unless the British exportor to France knowe at what rate he will be able to exchange the francs he receives for his goods into the pounds he needs, to
THE BANK OF EAST ASIA. LIMITED.
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Ild-tep Capital-
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Profis
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BOARD OF DIRECTORS:-
Hun. Sir Shouton Chow, Chairman,
14 Man Chun. Ya, La But,
1. K. Kwok, Fa
a
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Kan Tong Po, Eaq.. Chief Manager,
LI The Foog, aq, Manques.
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pay rent, wages, and so on, he can- not decide what price he should charge.
But the method of achieving international stability by declaring that each currency should have a fixed value in gold, and that the Central Bank of each country must agree on demand to sell gold at that agreed value-which was the method of the Gold Standard-WAI the wrong way of doing .
It had two consequences. It meant that the amount of currency which could be issued by a country was governed by the amount of gold it held
If for any reason the gold supply was reduced, the amount of money avaliable for circulation must also be reduced, irrespective of whether economic conditions demanded, not reduction but an increase, in the supply of money to expand the purchasing power.
Secondly, it divorced money from its real purpose, which is to provide a reasonably stable meas- urement of value for goods and services.
£ £ £
in terms of gold, for which we inve
no use..
The Gold Standard failed com- pletely throughout its existence to provide that stability of prices.
It required at times a raising of interest rates in order to main- tain the gold reserve by making it profitable for international furn- elal interests to leave their money in London, although this increase made badly needed industriai developments more costly.
It had to be abandoned on fla outbreak of war, since no nation was ready to allow the free export of gold.
But there was no real conceptlen of the possibility of an alternative All nations were deter - system. mined when the war was over to return to the Gold Standard soon as possible.
£ £ £
In o
Britain returned in 1925. doing, it gave the pound a value in terms of other currencies which immediately lost un a large part of our export trade, particularly of con. This led directly to an at- tack on miners' wages, to the coal lock-out. and to the General Strike.
France returned under Poin- caro's leadership in 1926, though One not at the pre-war level. after another the countries of the world followed suit.
The bankers of that time could conceive of no other move. They Ignored the warnings of some of
What is inaportant to you and to me is not that the currency notes "We receive in wages and salary-will-the-more-intelligent economista.
buy so many fractions of an ounce of gold, but how many of the things of ordinary Ble, the food and the clothes, it will buy.
We want reasonable stability of our money in terms of such things a stable price levèi, that Is much more than we want stability
Singmore
train
Shanghai Bombay Hwntow
Naumank!
New York
Cranks
Bydney
Parle
Pelping
Penang
Saigon
J'Alhoku
Tientaln Tokyo Vancoliver Ban Francleco Yokoham
Seattle Gemarang
Every description of lanking and Ex. change business transacled. Ioana granted ots approved sccarlisen.
Current Accounts opened in Local Cur rency and Fixed Deposit received for one year or shorter period in Local and Foreign Currancis on terms which will be quoted on pleatlon,
Bafe Deposit Boxes To Let.
KAN TONG TO,
Capital (filly-paid-up)
Alexandria
Chief kinger.
111
and of the Labour Party Britain. They alone, they con- sidered, were the practical men of finance.
But their dream of a return to perpetual stability on gold was soon to be broken. In 1931, under circumstances too fresh to need
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· Interwet allowed on Current Accounts: Deposits received for fixed periods at rates to be obtained on application.
¤. KISHINAMI,
Manege.
.Nov. 6th. .Nov. 19th..
UPS & DOWNS of the FRANC
Brind
worth
France
to the C
appine
1914
1926
At the outbreak of war French financial crisis
**
25.22
914.
241
ld.
1928
Rate fixed by Poincare
20.
M
1931
96
22.
1936
Now
44
762
3d..
100
21.
Britain off gold standard Before Frane came off gold Proposed neio rate 'about
recalling. Britain abandoned the Gold Standard for the second time. The Scandinavian countries fol- lowed; then the United States, Now France at last does likewise.
And this time we may hope the divorco is final. Since 1031 n new conception of the scope of mone- tary polley has impinged upon the minds even of bankers.
The passing of the Gold Stand- nrd does not leave a monetary vold behind it as it did in 1914. A uc- cessor steps into its shoes,
£ £ £
That successor is the system of managed currency, under which Internal price levels, and not the supply of gold, determine the volume of monetary supply, whe the international stabilliy nerea- nary for world trade is maintained by exchange operations.
This means that monetary policy can be decided solely on questions of public Interest- whether, for example. an
In expansion
The supply of money and cheep bar- rowing rates will make possible an increase in production.
Moreover, as production rises, so can effective consumption be in- ered by an increase in the supply of money.
Formerly, it was arguet hat, de- sirable as such freedom of moue- tary polley might be internally, R would be disastrous internationally - un curreneles had a fixed value in gold, they would fluctuate violently and make the exchange of goods and services between nations impossible.
We must choose. It was cold, br tween internal price stability and International exchange stabilky - we could not have both.
The new technique of the Ex- change Fund has shown that view to
wrong, although within be
PRESIDENT. LINER
124
reasonable Hmits both are possible. Under it, while a certain flexi- bility of exchange rates is allowed thus the franc exchange rate is to be permitted to move between 96 and 103 francs to the pound- violent day to day movements are prevented by the operations of State owned and controlled ex- change funds.
These can buy and sell cur- rencles to counter speculative and artificial movements without Inter- fering with the genulue exchange trend, and without demanding rigidity such as that which existed under the Gold Standard.
Britain has such a fund; so has the United States. France is now to have one.
It is a system infinitely more suited to modern economic needs than was the Gold Standard, and It is one which places control at monetary exchange policy In- creasingly in the hands of Gov- ernments through the State-con- trolled exchange funds.
And it takes it out of the hands of the bankers, to whom money is not so much a medium of exchange to be used for the general advan- tage, as an instrument of profit.
It is unlikely that Governments Conservative ones--will ever now agree to relinquish that control.
£ £ £
now We may hope, therefore, that France (under A Social- hns broken Government) through the monotary myth, a rapki advance, both to greater rconomic prosperity within her own boundaries, and to improved trade throughout the world, will be possible,
The Gold Standard is dead. Wo need not mourn it-for, aff gold chatia mean on to prosperity.
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From
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About
Destination.
14,500 31st Oct. Noon Bombay, Marseilles & London.
6,000
6,000
7th Nov. Marseilles, Havre, London, Hull,
Hamburg. Rolterdam & Antwerp.
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4,000 5th Dec, Bombay, Mursellles, Iluvre, London, Hull, burg, 'dam & Antwerp. 7th Dec. Bombay. Karachi and Persian Gulf.
Calls Tangier. Calls Casablanca.
0,000 Carge only. All yessels may call at Malta,
+
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8th Nov. 1 5,000 10,000 12th Nov.
21st Nov. Singapore, Port Sweltenham, Penang.
Rangoon & Calcutta. 5th Dec.
8.000 10,000
4,000 19th Dec.
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7,000 31st. Oel, 3 p.m. 7,000 4th Dec. 7,000 2nd Jan,
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SAILINGS TO SHANGHAI & JAPAN
"BURDWAN 6,000 31st Oct. 6 am. Shanghai & Japan.
TANDA
TILAWA
NALDERA
"SOMALI SANTIA
7,000
4th Nov. Shanghai & Japon.
10,000 12th Nov, Amay, Shanghal & Japan. 17,000 13th Nov. Shanghai & Japan. 0,003 25th Nov. Shanghai & Japan.
0,000 26th Nov: Amoy, Shanghal & Japan.
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Noto Maru............
.Thurs., 5th Nov.
Tuck, 24th Nov.
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Helyo Maru
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Kashima Maru'
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.Sat., 7th Nov. .. Fri., 20th Nov.
Sat., 5th Doc.
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and Marseilles.
Toyooka Maru
.Mon., 16th Nov,
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Sun., 1st Nov.
Thurs., 12th Nov..
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Mon., 10th Nov.
Sun., 8th Nov,
Atsuta Maru. (N'saki direct)
Fri., 20th Nov.
Fushimi Maru
Sat., 21st Nov."
Tsushima Maru
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