AN AMERICAN-CONTROLLED • GOLD STANDARD [To the Editor of the
SPECTATOR.] .
SIR,—S0 far, two nations engaged in the Great War have arranged to pay reparations or War debts (economically, they are the same) to other nations. One is Germany and the other Great Britain. What may be the result of trans- ferring, or seeking to transfer, large quantities of gold and goods from one nation to another, receiving nothing in exchange, goes beyond the experience of any of us, nor can history aid us.
Under the Dawes scheme Germany, however, is protected. That scheme considered it of greater importance that Germany should be placed and kept on a gold level than that she should pay reparations. Therefore, Germany is provided with a Safety valve in that her reparation payments are dependent on the rate of exchange. To that they have to be adjusted. Germany's liability consists in providing gold
marks in Gernzany. There it ceases. The task of exchanging them into foreign currencies is in the hands of an Allied Transfer Committee, whose main concern, apparently, is not to endanger the gold value of the mark. Rather than that should happen the marks are to be allowed to accumulate in Germany until a total equal to about 1250,000,000 is reached. Then the contribution from the German budget, estimated in a normal year to be equal to £62,500,000 per annum, automatically ceases for the time being.
But Britain has no such protection. Our debt payments to the United States are definitely fixed, and, spread over the next sixty years, come to the stupendous total of $10,785,000,000, equal, even at par, to over 12,200,000,000.
Unlike Germany, our liabilities do not end in providing pounds in London. We have to provide dollars in America. We are thus afforded no safety valve through being able to adjust the payments to the exchange. But, so long as we retain the embargo on the export of gold, we are free to allow the exchange to become adjusted to the payments. This, then, is our safety-valve. Remembering the unprece- dented nature of the transactions—the creation by us of wealth and giving it to the United States in gold and goods, receiving nothing in exchange—the provision of a safety-valve seems to be absolutely necessary if we are to carry out our contract.
Now comes the news that the Governor and a Director
of the Bank of England are in America—for what purpose ? According to the American correspondent of the Morning Post : to arrange for a resumption of the gold standard in England through co-operation with the Federal Reserve Board in the use of the excessive stock of gold now held by the American Government." If this is correct then the object of the visit would appear to be to raise a loan, and also to arrange for the deliberate destruction of our safety- valve by the withdrawal of the embargo on the export of gold. Difficult although our task would be, even with an exchange which could be adjusted to these abnormal debt- payments, yet to attach the pound to the dollar and thus do away with the safety-valve, with the payments scarcely begun, is asking for trouble, and is extremely likely, sooner or later, to cause an explosion. I must confess that not since the War has anything perturbed me more.
The position Of• the United States in the matter is not
difficult to understand. Rich beyond all measure and loaded up with gold, they see that in the payment of their War debts by us and,- later on, -it may be, by other nations in Europe, they are destined to receive more and still more gold. Now, gold means financial power, but only 'on condition that some other of the leading nations of the world accept it. Obviously, therefore, it is of the first importance to the United States to induce England to resume the gold standard as early as possible. Until we actually do so the United States are haunted by the fear that they may yet be left high and dry with their gold in which their War debts are' payable, and which, therefore, they must continue to receive or cancel the debts. '
It is not surprising, therefore, to find that the upward movement in the American exchange has emanated from the other side. That this is so one has only to look at our trade returns for the past year, which, for the eleven months;
unfortunately show, an adverse balance . of _1294sq000049 which is 1117,000,000 more than for 1923. We are; in fact, being lured on to the gold standard by America lending us more money. While to crown all, the Bank of,Exteand is apparently now engaged in arranging for a loan, or at any rate a credit, from the Federal Reserve Board., It seems almost incredible that we should be preparing to rely on borrowed money from. America when it is wholly unnecessary and our indebtedness is already so large. Pur true interest surely lies in repaying America as quickly as possible. With the co-operation of the Empire we have it in our power to produce the gold and goo* which would result in America being, paid well ahead of time. This we have the option to do on three, month's' notice. Part of our gold reserves, lying dormant and earning nothing, could also be used for this purpose. In these ways we could 'build up what in effect would be a protective reserve against the American Exchange, for use or not as we thought fit. Before so very long, if we set to work in dead earnest, the cards
{vould be in our hands: •
With this protective reserve, represented by payments ahead of our engagements, if we wished to help the American Exchange we could then diminish our purchases of dollars in payment of the debt. On the other hand, if we wished to prevent gold from coming here we could buy dollars and pay off More debt, diverting the sinking fund if necessary. Of perhaps still greater importance, by retaining the embargo on the export of gold, we would retain our safety-valve, and in view of the nature, the magnitude, and the duration of the trans- actions involved, who can say that it will not yet be necessary from time to time for the exchange to fall and so bring into play the natural corrective of a stimulus to exports and a check to imports in order that our debt may be liquidated ? But that is not all. We would retain our freedom over the rate of interest to lower it or raise it as suited this country best, having regard to its effect on our trade, on our employ- ment, and on the cost of our internal debt.
I repeat that it is scarcely credible that the Bank of England should be engaged in :bartering away our freedom in all these things which are so vital to the nation—and in exchange for what ? An American-controlled gold standard, which must inevitably result in the United States becoming the . world's supreme financial power, with England their tributary and satellite, and New York the world's financial centre.—I am, Sir, &c., Hollycornber, Englefield Green. J. P. DARLING..
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