B.I.S.

FINANCE

I WONDER if there are many readers of The Spectator who will know for what the letters which form the title of this article stand. In the City or, at all events, in banking circles, the letters are familiar enough, and it is well known that they stand for Bank for International Settlements, but I doubt whether even the full title will convey to the general public very much in the way of information about the character of the Institution or exactly what it stands for or what functions it performs. Because, however, its functions and its operations are of importance to the com- munities of all countries, and because they are likely to exercise an increasing influence upon world developments, I am venturing to devote a little space to a description of its general nature and scope in my article this week.

The Bank for International Settlements, which came into existence some eight years ago, owes both its formation and its title to the circumstances which surrounded the final arrangements for fixing the German war indemnity payments to the Allies. It is not necessary now to recall the details of that proposed settlement beyond the fact that the countries to whom the payments were to be made recognised, at long last, that the main difficulty of effecting these huge payments was one of exchange and it was intended that the new Bank should form the means for overcoming these difficulties. Originally, therefore, the title " for International Settlements " was more particularly associated with functions concerned with facilitating the transfer of Germany's indemnity pay- ments to the various countries entitled to receive them.

I think there is little doubt, however, that those responsible for this new Bank had a wider vision and, even apart from the indemnity payments, believed that the disturbed financial conditions of Europe after the War called for the creation (1: some central banking institution able to bring about something approaching international co-operation in financial affairs even if similar co-operation in international politics was lacking.

GOLD PRODUCTION.

Each year the B.I.S. publishes a voluminous Report dealing with a general survey of economic, monetary and cur- rency developments in the various countries. The seventh Annual Report is before me as I write and it is evident that the subject which at the moment is giving most concern to the B.I.S. Directorate is the great increase in gold production, its effect so far upon prices of commodities and the possibilities of inflation if no steadying and even restraining influences are exercised. How great has been the increase in the world production of gold during the post-War years may be gathered from the following table taken from the latest Report of the B.I.S.

Year. Other World South U.S.A. Canada producing Production.

Africa. U.S.S.R. ** countries.

in thousands of fine ounces. millions of gold Swiss francs.

1915* 9,096

1,546 4,888 918 6,146 22,594 2,420 1923

9,149 438

2,503

1,233 4,463

17,786

1,905

1924 9,575 594 2,529 1,525 4,827 19,050 2,041 1925

9,598

693 2,412 1,736 4,592 19,031

2,039

1926 9,955 895 2,335

1,754 4,430

19,369

2,075

1927 10,122 810 2,197

1,853 4,464

19,446 2,083 1928 10,354 899 2,233 1,891 4,206 19,583 2,098 1929 10,412 1,085 2,208 1,928 4,040 19,673 2,108 1930 10,716 1,434 2,286 2,102 4,184 20,722 2,220

1931

10,878 1,701 2,396

2,694 4,702

22,371

2,397 1932

11,559 1,990

2,449 3,044

5,264 24,306

2,604 1933

11,014 2,667 2,537 2,949 6,336 25,503 2,732

1934

10,480 4,263 2,916 2,972 6,999 27,630

2,960 1935

10,774 5,831 3,619 3,283 7,484 30,991 3,320 1936 11,339 7,350 4,295 3,721

8,549

35,254 3,777 *Record year before 1932. **Including the Philippines.

RUSSIA'S CONTRIBUTION.

From the foregoing it will be noted that a conspicuous feature has been the increase in the gold production of Soviet Russia. Indeed, comparing the production of 1936 with 1929, the percentage increase in the case of Russia

TRAVEL WITH BAEDEKER

is no less than 577, Australia following with an increase of 181 and Japan with one of 102. Moreover, quite as interesting as the movements in the production of gold have been the changes in the holdings of the monetary gold stocks of the world as expressed in the gold reserves of the banks of issue and Governments. These movements are also shown in the following table :

Reported gold reserves of banks of issue and governments. End of 1934. End of Loss () End of Loss (-) 1935. or Gain (±) 1936. or Gain( + ) during 1935. during 1936 in millions of gold Swiss francs.

France .. 16,675 13,455 - 3,220 9,168 - 4,287 Spain .. 2,268 2,255 - 13 r,600* - 655 Italy .. 1,585 826 - 759 638 188 Czechoslovakia Germany .. 343 188 344 192 +

+ 4

279

141 - 51- 65

Poland South Africa .. 293 562 258 649 35 4- 87 228 621 - 30 - 28 Greece • 122 104 - 18 78 - 26 Uruguay .. 249 226 - 23 209 17 Australia 13 13

0

5 8 Canada 669 578

91

575 3 Ecuador 16 13 3 II 2 Total 22,983 18,913

- 4,070 13,553 - 5,360 Albania 7

Algeria 43 Argentina 1,235

Austria 139

Belgian Congo 9 Chile 89 Denmark .. 185 Egypt 165 Estonia 34 India 840 Latvia 46 New Zealand 76

8 43 1,235 140

9 90 164

165 40 840 46 71

± r

0

0 + I

0

+ I - 21 0 + 6 0 0 - 5 8 43 1,235 140 9

90

164 165

40 840 46 71

0 0 0 O 0 0 0 0 0 0 0 O

Total 2,868 2,851 - 17 2,851

Portugal 208 208 0 209 + I Bulgaria 58 6o 2 62 ± 2 Morocco 22 22 o 24 + 2

Danzig 24

12 - 12 17 + 5

Hungary 71 71

o 76 + 5 Peru .. 57 58 + I 64 ± 6 Colombia 59

48

- II 58 ro Turkey 67 72 + 5 83 -I- t Rumania .. 319 335 + 16 35o + 15 Yugoslavia .. 163 131 32 148 + 17 Dutch East Indies 236 167 69 185 ± 18 LithilaniR 27 19 8 38 ± 19 Norway .. 187 257 ± 70 299

+ 42

Finland .. 42 62 + 20 ro6

+ 44

Belgium .. 1,837 1,857 20

1,934

+ 77 Japan .. .. 1,205 1,302 + 97 1,416 + 114 Netherlands .. 1,754 1,340

- 414 1,499 + 159

Sweden .. 488 566 + 78 735

+ 169

Switzerland .. 1,910 1,389 - 521 2,006 + 617 U.S.S.R. .. 2,277 2,569 + 292

3,535* + 966

United Kingdom 4,850

5,046

+ 196

7,911 4- 2,865

U.S.A. .. 25,216 30,992

+ 5,776

34,439 + 3,447 Total 41,077

46,583

+ 5,506

55,194

+ 8,611 Grand Total ** 67,300 69,000

± 1,700

72,300

+ 3,300

*Estimated. **Partly estimated and including other countries.

The foregoing figures show very clearly the heavy losses of the metal by France, the huge gains by the United States and the more moderate gains by this country. These figures go up to the end of last year, since when, however, the stream of gold from Russia has been even more marked, while the receipts of gold by the United States have been such as to give rise to the recent rumours of Washington being about to lower its buying price for gold. And although these rumours have received frequent contradictions, un- certainty with regard to the future of gold continues to be one of the most disturbing influences not only in the market for mining shares but in the general financial outlook.

PUBLIC PERPLEXITY.

And if amidst these latest developments the general public should feel perplexed about their real significance and their ultimate results, I think the public may well be excused for their perplexity. It is but a few years since they were told by the financial pundits that England's prosperity was linked with, if not dependent upon, the gold standard, and yet in 1932, when we had left that standard, they were told by many writers and economists that we had been (Continued on page 974.)

FINANCE

(Continued from page 972.) emancipated from a system which was fettering us and that the scarcity of gold made it impossible to be used as a standard and still less as a means of currency without bringing about monetary stringency. And now the latest story is of a glut of gold with an inconvenient rise in com- modity prices, although at the World Economic Conference of a few years ago the Empire nations and the United States were all unanimous in declaring that a rise in commodity prices was the prime essential for a recovery in trade.

Of course, the plain truth is that amidst the chaos— political and economic—resulting from the Great War, the national desire to reconstruct the credit structure, so sorely damaged by the War, led to all kinds of experiments which one day will have to be regarded as experiments only designed to bridge over a transition period, the termina- tion of which must so largely depend upon the restoration of that measure of international co-operation without which there can be no system devised adequate to secure a return to those stable conditions which existed prior to x914. For at the very moment that modern inventions, including the wireless and rapid means of physical communication, have linked together the nations of the world more closely than for many generations, the one thing necessary to make this linking a means for achieving world-wide prosperity, namely, international confidence and co-operation, is lacking. It will, we trust, come in good time, but meanwhile it might be a good thing that the general public should now understand that we seem to have come to a fresh stage in the post-War financial and economic evolution, the outcome of which may largely determine such matters as the general cost of living as measured by our currency arrangements, and also the course of price movements of public securities.

For at present the gold situation is, in some respects, an impossible one. On the one hand the high price of the metal as measured in many of the principal countries is stimulating production to an extent which is embarrassing its chief recipient, the United States, which is sterilising it—at con- siderable cost—so that it shall not cause an undue expansion in credit.

FUTURE OF GOLD.

I do not know whether the Report of the Bank for Inter- national Settlements is obtainable by the general public from the head office at Basle, but if it is, those who would wish to see this subject of the abnormal increase in gold production dealt with in exhaustive fashion, would do well to obtain a copy of the Seventh (which is the latest) Annual Report, where the matter is ably dealt with in its relation to other international financial problems, and those who are apprehensive of an early reduction in the price of gold may perhaps obtain some comfort from the following con- clusions which close the chapter on " Mounting Gold Supplies." The President of the B.I.S., Dr. Trip, says : " It has been suggested that the price paid per ounce of gold should be lowered from the high figures to which it has risen in terms of depreciated currencies ; in that way the amount of monetary purchasing power produced by a given weight of gold would be reduced, and a restraining influence would also be exerted on the output of gold, for gold mining would become less profitable. It can hardly be doubted that at present a lowering of the price of gold would help to cope with the serious problems resulting from the over-abundant production. It would, however, cause certain difficulties with regard to valuation of existing gold reserves and the relative position of currencies .(the latter, in so far as equilibrium has already been attained, should be disturbed as little as possible). It would, moreover, involve the danger of manipulation of currencies in the future, which would add an element of instability and distrust to the monetary structure. In the discussion of a reconstruction of the world's monetary system these various questions, difficult though they may be, cannot be avoided. Also. from the point of view of the gold producers, it is important to establish conditions that will render gold continu- ously useful as a basis for currencies, instead of concentrating

attention on immediate profits."

ARTHUR W. KIDDY.