Evening star., 1933-09-30

An increasing number OF people
In the United States are Gpprehen-
sive of currency imitation and fear
tul of its results.
Eight distinguished men, repre-
sent,ng both major political parties,
haze approved and sponsored series
OF articles presenting their vieppoint
ON the money problems of the day
as their contribution to1odrd promot-
ing clear understanding OF the
monetary system in the present con-
tropersy
The series Utu appear in this netcs-
paper in is consecutive daily chap
ters The sirth is presented today.
(Copyright 1888. bv North American News
paper Alliance, 1ncO
ARTICLE vi.
The International Gold Standard.
In our discussion of Representative
money" brief reference was made to the
gold standard. The essence OF that
standard, it was pointed out, is the con-
vertibility of countrys currency at
all times into given amount OF gold
a convertibility which. as we have seen:
is assured by the maintenance OF
adequate gold reserves.
a domestic regular and protector OF
the currency supply, the gold standard
has another function quite as i'm
portant This is its function as a
medium of international trade.
Small, hand to hand, business trans
actions, it has been seen are settled by
means of currency-bank notes and
coin-while larger local transactions are
settled by check. Transactions involv-
ing payments of money by person in
one part of the world to a person in
another part of the world, however, are
settled with bills of exchange.
Specific Case Is Cited.
To bring the matter down to speci-
fic case, take George Jones. New York,
who has sold consignment OF cotton
to Lloyd Williams. Liverpool. What
Jones wants is dollars in New York.
These dollars he obtains in one OF two
ways. Either Williams goes to his bank,
buys a draft on its New York cores
pondent, and sends it to Jones. or Will
liams instructs Jones to draw a draft
directly on him or on some bank IN New
York or in London. If the draft Is on
a New York bank, it will be payable,
of course, in dollars: If it is on Will
lams or a London bank, it will be pay
able in pounds sterling. In the latter
case Jones sells the draft Cor bill OF
exchange) in the New York foreign ex-
change market, and gets dollars Tor 1t.
The foreign exchange banker. who
has deposit accounts with banks IN all
parts of the world, stands ready at all
times to buy drafts from any one with
drafts to sell, or to sell to those wish
ing to buy. He does not sell the actual
81 - hi ho
correspondent bank in the foreign city
on which it was drawn, to be credited
to his account Hence, when some one
comes along and wants to buy draft
on that particular city, the banker is
in position to sell him one-his own
draft, drawn against his own balance.
Now foreign exchange is like every
thing else It is subject to the law
of demand and supply. Thus. when
there is a heavy demand for sterling
drafts (exchange) the pound rises in
terms of the dollar in the foreign
exchange market: if. on the other hand.
there is an unusual demand for dollar
exchange. sterling declines and the
dollar rises.
Gold Is Stabilizer.
without some governor, or stabilizing
agency, there Is nothing to prevent
widest fluctuation in the quotations of
the different currencies in terms of one
another This has been illustrated
since the abandonment of the gold
standard by England in 1881; it has
been accentuated further since the dol
lar went of gold last Spring. Sterling
In this period has been quoted as low
as $3.14 and as high as $4.86. Nor
mally. gold provides such a governor"
Let us see why.
Clearly If the national money Of each
country Is exchangeable for fixed
quantity Of gold, the national moneys
Of different gold countries must be ex-
changeable for one another at rates
corresponding to the amount Of gold
they contain. For example, the pound
sterling is exchangeable for a sovereign
containing 113.0016 grains Of gold,
while the gold equivalent OF the dollar