Finance—Public and Private
Mysterious Gold Movements A Lrrms. more than a month ago an improvement in the position at the Bank of England as regards the stock of gold resulted in the reduction in the official rate of discount from 5 to 41 per cent., and, as is usual on the Stock Exchange, the movement was hailed as the pre- cursor of a complete change in the situation so that an early further reduction to 4 per cent. was confidently anticipated. This optimism I was not able to endorse because of a recollection of the inevitable after-conse- quences of last year's prolonged coal stoppage upon our own position, and the result has shown that the caution was justified. Up to a little more than a week ago the improvement in the Bank of England's position continued, and the weekly return published on May 18th was one of the strongest as regards the Reserve since the outbreak of War. Satisfaction, however, was quickly modified by the announcement that £1,500,000 in bar gold had been sold by the Bank and this was followed by larger withdrawals a little later, with the result that during the past week the Bank lost about £3,000,000 in gold. Not only are such heavy gold withdrawals quite unusual for the period of the year, but the mystery concerning the operation was increased by the fact that no information was available as to the destination of the gold.
RISE IN MONEY RATES.
As a consequence of these unexpected gold withdrawals and the anticipations of a further efflux, the Bank Rate, which for so long had been ineffective in the sense of con- trolling rates in the open market, has now become com- paratively effective, the discount rate which ten days ago was scarcely better than 3- per cent. having risen to about 41 per cent., while, as a consequence of this spurt in the value of money, investment securities on the Stock Exchange have been depressed.
IRRESPONSIBLE GUESSES.
All kinds of guesses have been made in the Press with regard to the causes responsible for the mysterious gold withdrawals, some asserting that the Soviets had taken it in anticipation of the breaking off of diplomatic relations, while almost every possible country has been named as recipient of the gold. Beyond passing the remark that I do not believe for a moment that the Soviets would have had it in their power, even if they so desired, to withdraw sonic millions of gold from this country, I do not propose to join in these guesses. It is not usual in cases of pur- chases or sales of bar gold to announce the nature of the operation, and if I now draw attention to certain abnormal features in the international financial situation, it is not to suggest the direction in which the gold may have gone, but to emphasize the desirability of more attention being given to developments abroad, which inevitably have their reactionary effect upon the financial situation at home: THE COAL STOPPAGE.
In the first place, I suggest that there has been an insufficient recognition of the far-reaching effects of last year's labour disturbances and the prolonged coal stoppage. We know very well that in the matter of industrial profits, loss to the Revenue, and so forth, the aggregate amount involved must have gone into almost hundreds of millions, but it must be remembered that the loss has been a double one, because many countries • gained enormously by the Stoppage of our coal exports and by our large purchases of hat commodity. The result was that adverse forces ring upon the Foreign Exchanges accumulated, nd effectively prevented the American Exchange from (wing decisively in our favour, as is customary during be early part of the year. The next point is that now that we are once again on old standard, and have to bear the responsibilities ttaolling to a free gold market, adverse economic positions. ner or later have a way of touching our gold reserves. or is this fact .n any-way--detrimental- to the-merits-of the gold standard, for those who pleadA for a return to it knew full well that we should be returning to a position where the consequences of any economic follies must of necessity be the more clearly revealed.
SOME CONUNDRUMS.
At the same time, I am not suggesting that the present situation and the large gold withdrawals arc necessarily the result only of our economic follies of last year. But I believe that the situation has to that extent been made the more sensitive to any adverse influences. Thus, for example, it may be doubted whether sufficient attention has been given to recent developments in Germany or in France, for the one has dovetailed into the other, and has produced conditions of a most unusual and exceptional character. Less than twelve months ago everyone was talking of the weakness of the franc, which was scarcely better than 250 to the £, while it was nothing to find oscillations of many francs a day. To-day the franc is uncannily steady at 124, although it is an open secret that there is the greatest difficulty in preventing further rapid appreciation. How comes it that within a twelvemonth the franc is as difficult to buy as it was difficult to sell a year ago, and how comes it that the French Treasury, which at the time when M. Poineare took office appeared to be in an impecunious position, is now apparently in affluent circumstances, while the Bank of France accumulates such colossal foreign balances as to be able a few weeks ago to anticipate by some three and a half years the repayment to the Bank of England of its debt of X33,000,000? And, further, when about .Z8,000,000 of gold lodged by the Bank of France as collateral against the loan is released, how comes it that figures still appear in the Bank of France weekly statement as " Gold available abroad," although circumstantial statements come from New York as to the greater part of the gold having been acquired by the Federal Reserve Bank ?
THE GERMAN. CRISIS.
• Then by way of further emphasizing the abnornialily conditions on the Continent we have a Bourse crisis in Germany, obviously precipitated by colossal speculation in securities and by enormous purchases of French securities, such purchases apparently having been inspired by a belief that the franc would be stabilized at 100 or at an even lower figure. The Bank of France, it is clear from the Paris cables, is disinclined to sell foreign curren- cies and purchases of dollars arc mostly made via London, a circumstance which probably explains the persistent weakness of the American exchange.
Of course a partial key to the foreign problem is supplied by the mere fact that following upon the activities of the Poincare Ministry local confidence in the franc returned. Much of the huge sum in foreign currencies now held by the Bank of France is there because French citizens have recalled their gold from foreign banks ; it has been further supplemented by the German and other foreign purchases of French industrials. I suggest, therefore, that in these abnormal couditiouti now prevailing at some of the foreign centres we have at least some explanation of abnormal foreign exchanges and gold movements. Some of them may be regarded as the outcome of natural economic conditions, but it is clear that they are supplemented by operations of various kinds which have more relation to financial manipulation on a large scale than to the ordinary laws of adverse trade balances. The abnormal will no doubt in due time give place to the normal, but with regard to the financial outlook we have to remember that abnormal and unsettled financial conditions in Europe continue to be one of the War's legacies and that as the financial centre of Europe we are bound to feel some of the effects and strain.
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