Evening star., 1934-02-04
Sterilization Fund
Regarded as an Interesting Adventure

out of the treasury and represented
no new magic pounds. and the Amer
ican fund lies in the brand-new ere
ated" dollars, each one backed by 100
per cent gold.
To keep the dollar down in terms Of
pounds and francs, so that surplus
American products can be sold more
readily, the stabilization fund may
have to sell large quantities Of dol
lars. 1t would sell these dollars by
buying gold at S35 an ounce and in
unlimited quantities at this point. But
it can sell them only in gold standard
countries, like France and Holland
and Switzerland. because only in
those countries can it turn the dollars
into gold and get something perma-
nent. definite and tangible in return.
At this point the dynamite in the
stabilization fund is supposed to enter.
First, If dollars have to be sold in
big volume in order to keep their
price down in terms Of francs and
other currencies, then the gold stand
ard countries might quickly lose SO
much gold that they would be forced
of the gold standard. That would
leave nothing for either the British or
the American fund to use as a full
crum, and the whole stabilization
operation would result in currency
chaos
Or. second. if these new dollars are
used to acquire gold, or If they are
used to support the market for Gov
ernment bonds. as they can be used,
then those purchases will bring new
dollars into banks and force their ex-
cess reserves up higher. It is these
excess reserves that people who are
afraid of credit imitation are watch
ing closely.
These reserves already total about
one billion dollars. or more than at
any time in history. All the dollars
sold by the stabilization fund, which
could total two billions, would add to
the reserves. Then there is boarded
money and American capital that
went abroad and now wants to come
home, to total of at least one billion
dollars more. Probably it would total
two billions.
Added up. that gives between four
and five billions of potential excess
bank reserves. It is these reserves
that serve as the basis for credit ex-
pansion. Americas part in the World
War was financed from q base Of
about $500, 100000 in excess Of bank
reserves. Now in sight are billions of
them.
Some officials here figure that be-
tween $4,000, 100000 and 500 .o00,-
O00. 900 Of new credit could be built on
the possible reserves now in sight. The
thought Of the boom that could be
built on this type of imitation causes
them to shiver. They are wondering
whether there is at hand any means
OF controlling the credit expansion If
1t gets under way.
The answer seems to be, SO far as
it can now be obtained in Official
quarters, that credit expansion has
not yet started. with the biggest ex-
cess bank reserves available for
months as a base. Also. the Govern
ment needs about six billions of new
credit and will take up any early ex-
pansion for its own use.
Besides. 1t Is very doubtful II any
great amount Of the sterilization fund
will be spent. Rather it will be steril-
lied and paid out only as needed, 50
that it will not tend to add greatly to
the reserves now available
Then, actually. the expectation here
is that some sort Of truce In the cur
rency war will have to be arranged
before many months. or even weeks.
There might not be an early new
monetary conference between the ma
tions. but exchanges will be stabilized
so that the American fund may not
have to do much fighting.
Otherwise sort Of currency chaos
would impend. based on the prospect
that the remaining gold standard
countries would stop paying out gold
and leave the paper standard coun-
tries to battle out their relationships
among themselves That sort of strug-
gle seemingly would be welcomed by
no one here
(Copyright, 1934)