Finance Public and Private
An Unsettled Outlook
DeRING the past week thc.attractions of Epsom and the Whitsuntide holidays may very well have accounted for much of the stagnation noticeable in Stock Exchange business. • Moreover, the market for high-class invest- ment securities has also been affected by the steady stream of fresh issues of capital making large demands upon investment resources. The decline even in invest- ment stocks has not indeed been very serious, but there has been a decided halt in business, and I think that the halt and the more subdued tone must be attributed to influences of a less ephemeral character.
SOME CLOUDS.
A few weeks ago the main discernible factors in the situation could have been summarized very simply. As regards the monetary outlook the indications favoured a reduction ere long in the Bank Rate to 41 per cent., the technical position of the Stock Markets was generally sound, while as regards international politics, conditions were as normal as they have been at any time since the War, so that, speaking generally, the financial barometer, while not standing, perhaps, at " very dry," was, on the whole, indicative of " fair weather." Within the last few weeks, however, there have been developments which may or may not have a considerable effect upon the financial situation here, and to some of these I will make brief reference. • In one respect, namely, the technical position of arkets, there has probably not been very much change rom a few weeks ago. Confident expectations in some uarters of an early reduction in the Bank Rate to 4 per ent. may have led to an increase in speculative dealings British Funds and kindred securities, but, even so, I hould imagine that disappointment has now led to the iquidation of most of there positions. And while in a few if the speculative counters in the industrial section mmitments have been fairly extensive, I do not think hat on the whole the technical position of markets is her than sound. Nor is the City unduly perturbed v the break with Russia or the Egyptian incident, lough both developments were unlooked for.
FRENCH GOLD PURCIIASES.
Developments in the monetary situation have, however, en of a somewhat remarkable character. I referred st week to the mysterious purchases of gold and indicated hat the key to the general financial situation at home as probably to be found in international rather than in cal finance. Before the Spectator appeared in print me the official announcement by the Bank of England the effect that the large purchases of bar gold had been n account of the Bank of France and were probably be connected with the monetary programme now course of execution in France. I do not propose to bour the point or enter at all deeply into the 'mplexities connected with this financial programme," ut there are one or two aspects of the situation in France hid], because of their influence on the situation here. ould, I think, be more generally recognized. Because, owever, I want to express a difficult and complex tuation in a few simple words, it must be understood at what follows is both crude and incomplete.
VAGARIES OF TILE FRANC.
When, a year ago, lack of confidence caused a flight In the franc and a fall to 250 to the £, the situation as not difficult even for the man in the street to com- ehend. What- is Mott, difficult, however, for the initiated and uninstructed to comprehend is the fact at the French authorities are now as anxious to prevent undue the in the franc as a year ago they were to event a further slump. The recovery which has en place in the franc can be attributed, in the first ce. to greater confidence inspired by the Poincare nistry, in the second place, to the consequent recall their capital, by French- nationals who had bought foreign currency, and, in the third place—and this is really the important point—to a world-wide feeling that that the franc was undervalued, this feeling prompting steady and large purchases of French currency.
FRENCH FOREIGN BAI.ANCES.
Ever since last autumn the Bank of France has had the entire handling and control of the purchases and sales of French and foreign currencies. Under an ingeniously devised system it has been able to supply francs to an unlimited amount to all purchasers, thus keeping the rate artificially steady at 124, and in connexion with that operation it has acquired a colossal amount in foreign currencies. In other words, not only is France in the peculiar position of possessing extraordinarily large balances at two leading monetary centres, thereby affecting the monetary policy of those countries, but at present it seems to be part of the policy of the French authorities to produce stringent conditions abroad: It will be seen, therefore, that we have here an abnormal position, connected not with any ordinary question of trade balances, but with international dealings--it might almost be said international gamblings— in the currency of a particular country, complicated by the fact that the country in question is apparently resolved that its currency shall not be allowed to feel the effects of these purchases.
OUR OWN POLICY.
By way of contrast, however, it may be pointed out that during the post-War period this country has not been without its own embarrassments arising out of a depreciated exchange and heavy external obligations. But our own policy may be said to have been based on a desire to discharge to the full our obligations to creditors whether external or internal in the spirit and letter, and to that end we imposed heavy taxation, balanced our Budget, and, in fact, conducted our finances generally along lines which were based on a desire for the restoration of sound conditions throughout the world. In France an inflationary policy was persisted in for a great length of time, to the serious inconvenience of sur- rounding countries, and to-day these same countries arc experiencing further inconvenience through the apparent unwillingness of France either to let the franc take its natural course or to stabilize it at a fixed level.
ARTHUR W. KIDDY.
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