"Maniged " Currencies
Finance
NEARLY_ :three Weeks. have now elapsed since the French Franc was deValued and the important announcement was made of the readiness of the monetary authorities in New York and London to co-operate with the French Government in making the devaluation a success in the sense of steadying the exchange quotations of the Franc. This " gentlemen's " agreement, as it has been called in some quarters, was welcomed whole- heartedly by the British Press, and in The Sped,ator of October 2nd I emphasised the importance of the arrangement as possibly paving the way to international co-operation on matters making for an increase in international trade, while at the recent Bankers' Dinner at the Mansion House frequent references were madc to its importance and significance.
THE " THRALDOM " OF GOLD.
I have, however, found myself unable to join whole- heartedly in the expressions which have been used in some directions with regard to the supposed emancipa- tion of the world irom the "thraldom" of gold. I have found myself unable to do this for several reasons. It has been my lot—as I think it will also have been the lot of rainy of the readers of this article—to have lived very happily for a considerable time in those years of the "thraldom" of gold before the year 1914, and I do not find it easy to recall any severe hardships, but rather I have a very clear recollection that the volume of world trade was far greater in those days than now. Nor do I remember that there was then any difficulty in arranging international financial transactions. It is true that there were periods of what were known as trade cycles and extreme activity and prosperity in trade were often succeeded by conditions of a different kind, but for the most• part the net result was that of progression towards ever- increasing prosperity, while the powtr of each country to obtain such supplies of gold as were necessary for sound financial conditions was roughly measured by the ability of each country to achieve a favourable trade balance.
Tim HAVOC OF WAR.
These conditions, as expressed in the international credit system, were rudely disturbed, not, be it remem- bered, as a result of any action on the part of those who had built up the system, but by Governments them- selves as the 'result not of economic but of political happenings ; and the chaotic conditions in international finance and commerce which have characterised the post-War years have been largely the result of the means which Governments found necessary to finance the War and the conditions following it. It may well be that the post-War conditions and the after-effects of inflation were such that a monetary system governed by the requirements of a gold standard was impossible by reason of a need for a temporary expansion of credit, but the danger is lest the new-found liberty threatens to degenerate into licence, and I am glad to note that when speaking at the Mansion House last week the Chancellor of the Exchequer, in referring to the devalua- tion Of currencies by the gold-blOc countries, expressed the hope that the movement, backed with the friendly understanding reached between France, Great Britain and the United States, might lead on to a general stabilisation based upon an international gold standard.
INTERNATIONAL SETTLEMENTS.
For I fancy that Mr. Neville Chamberlain has the wisdom to see - that a merely " managed " currency, apart from the authority of a gold basis, however useful in--times of emergency, is unsuitable for normal con- ditions. That there may be greater need in the future for monetary' policy to have for its aim steadiness of price levels, assuring as far. as may be possible the steadi- MS:s. of the puTchasing power of the currency of a country in teims of commodities, can be admitted; but the events of recent years have shown very clearly that in the matter of international settlements gold is still essential, and if that be so, then It is clear that for the free exchange of international goods and services the authority exercised by a gold standard becomes necessary.
Indeed, proof of the need for gold in the matter of international settlements and of exerting a permanent steadying influence on the exchanges has been furnished only this week by the announcement by the Treasury that the recent triarikUlai working arrangement between France, the United States and this country is to be made possible by the United States announcing that the U.S. Treasury will Supply kola in exchange for dollars by any country which gives reciprocal facilities to the United States. We on our part have agreed to give similar facilities and similar arrangements have been made with the Bank of France. Thus, we have a formal acknowledgement by the three leading Governments of the world of the absolute necessity for the possession and use of gold as a basis for ensuring international settlements.
GOVERNMENT CONTROL.
At the same time, it will be noted that this control of exchanges remains very much in the hands of Govern- ments, and while fully admitting that the steadiness of exchanges which may result should be a factor helping to stimulate international trade, I doubt very much whether that stimulus will become permanent and reliable until once again the leading countries have adopted gold as their own standard of value and the working of the exchanges is once more in the hands of ordinary traders and not with Governments.
DANGERS OF STATE CONTROL.
For I am persuaded that so long as the" management" of currencies is left in the hands of Governments of varying -characters there will be the danger of misman- agement, and until the world as a whole has come to see the -need for a breaking down of all barriers calculated to restrain the further working of international trade, there will be the- danger of State " management " of currencies falling into line with the State " management" of tariffs, with too much concern for international con- ditions and too little for world conditions as a whole. Moreover, it must be remembered that " managed " currencies, which may work with some success when the various leading Governments are on terms of friend- ship and in accord as to general purposes, might present a very different aspect if there were strained relations between the Governments concerned in such " manage- ment " ; the trader would then be far more at the mercy of international political developments than in the old days when the movements of gold and the working of the exchanges were the result, not of Government control, but of operations on the part of the nationals of the different countries. I hold very strongly to the belief, therefore, that it is distinctly premature to rejoice in an espage.from the " thraldom of gold, for it is possible that in the years to come we may find that true liberty is only to be found in the reasonable and intelligent " control " imposed by a gold standard.
ARTHUR W. KIDDY.
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