Currency at Ottawa
BY H. V. THE stream of world trade is trickling through a stagnant bog. Strive as we may by canalizing it to enlarge its volume, we cannot hope for the success that would he ours if we could somehow renew its springs. Strive as we may at Ottawa to divert and deepen the channels of trade, we cannot hope to achieve the enlarge- ment even of Empire trade that would ensue if we could by some means restore the price level to its height of two—let alone four—years ago, and multiply the purchasing power of the world. The greatness of the opportunity needs no emphasis. At Ottawa there are represented a group of nations forming the larger part of what has come to be known, since last September, as the " sterling area " (though some of the countries included in it, while cutting loose their currencies from gold, have not attached them to the pound) ; they are freed, all save one, from the inhibitions and penalties associated with the international gold standard, and ean, if they please, reorganize their monetary systems on a totally new plan.
But when that is said the next step in the argument is not obvious. What is the new plan and how is it to be put into operation ? Let us ask, first, what we require of it. We require that it should facilitate and not hinder the vital process of international trade, and we require that it should serve to inject into the world's economic system a fresh dose of the monetary purchasing power that has so sadly dwindled in the past three years. Now those two purposes must prove to some extent incompatible. If, within the British Commonwealth or the wider sterling area, we were to expand credit and raise prices, we should be tending to depreciate our currencies relatively to those outside the group, and to handicap our trade with outside countries by the very uncertainty of the relation between our values and theirs. We would do well to remember, before embarking on any new monetary enterprise, that in the gradual recovery of world trade after the War, particularly from 1924 onwards, no influence was more powerful than the restoration of stability of international exchange rates, just as no hindrance to that recovery had been more restrictive than their instability.
At any rate it is certain that we must demand of - whatever new plan is adumbrated that it should stabilize exchanges within the subscribing group of countries. Our next demand, the expansion of credit and the raising of prices, is more easily formulated than fulfilled. Economists are fairly well agreed that a revival of trade is the cause of a rise of prices rather than the other way about, though of course as soon as merchants and manufacturers feel sure that there is going to be a rise of prices they advance their purchases, and trade automatically accelerates. Somehow, therefore, final demand must be stimulated. That could be achieved, no doubt, by national and by private over-spending. An unbalanced budget is the shortest road to inflation. But such artificial and dangerous expedients bring an inevitable (lay of reckoning when the Government has to fund its deficits and pay off its creditors. What is more, the sapping of public confidence would undo much of the initial inflationary effects. The expansion of credit must come from sound industrial and commercial demand if the last state of the house is not to be worse than the first. How is enterprise to be tempted ? Money must be cheap to borrow, plainly ; and it must be plentiful, for the mere lowering of interest rates is inadequate if iorrowers have to be discouraged because of the want HODSON. R.M.S. Empress of Britain,' July 16th.
of money to lend them at any price. But far more im. portant than the easing of credit conditions is the revival of business confidence ; bank rate might be reduced to one half per cent., and the banks be placed in a condition of embarrassing liquidity, yet the volume of credit might not expand by a single pound if public belief in the future remained depressed.
Thus immediate measures of monetary reform are conditioned by the necessity first for maintaining inter- national stability, and secondly for a spontaneous industrial and commercial revival based on a return of confidence. But we must look beyond the needs of the moment to the future monetary system under which our preferential arrangements, whatever they may be, will have to operate. The countless suggestions that have been put forward may be grouped under a few general heads—a return to gold, presumably at some new level of exchange ; the addition of silver to gold as a monetary standard ; the establishment of an Empire exchange pool ; the creation of a new currency for Empire trade (and trade with any other countries which might join the monetary group) ; a managed monetary system for the Empire controlled by some central and representative authority. Space is too short here to offer anything but a few general com- ments on these proposals. The remonetization of silver would enrich the Empire as a producer of silver, and would stabilize exchanges with the Far East, but it would not solve the problem of the maldistribution of the world's monetary reserves, since Great Britain, for instance, whose actual silver reserves are small, would still have to compete with the United States, France and others for the world's available supplies. In that matter, the readjustment of gold exchange ratios alone would be far more effective. An exchange pool is a useful device for maintaining international stability, but it needs a central authority to control it, since the independent and extrava- gant policy of a single member might soon exhaust its credit with the pool and cause the breakdown of the system ; and the same is true, a fortiori, of schemes for an Empire currency or an Empire central bank. Are the self-governing members of the British Commonwealth prepared to forgo in such measure their autonomy in monetary matters, and to see a distant board in London —which must remain the dominating financial centre— determining their internal credit policy ? That is a ques- tion which the Dominions themselves must answer.
The problem of monetary reform takes on very different aspects for the different British nations represented at Ottawa. For ourselves, we think of our own depressed industrial condition but also of our position as a world financial and trading power, which would be gravely injured by a further dislocation of the exchanges. For South Africa, the problem involves acute internal political controversy as well as her position as the world's greatest producer of gold, whose prestige as a monetary instru- ment she would not willingly depress. For New Zealand and Australia, it is a question of relief from their severe internal deflation and the pitifully low prices of their primary exports. For Canada, it involves the nice balance between her commercial attachment to Great Britain and her financial attachment to the United States. For India, it raises the question of her future constitutional liberty in monetary affairs. The currency and credit issue at Ottawa has frequently been presented as a simple one ; on the contrary, it is exceedingly complicated and conceals perils every whit as dangerous as those of mis- guided tariff manipulation,
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