The Washington times., 1935-11-23
FRANCES GOLD
POSITION SEEN
UNCERTAIN
BY LEWIS HANEY
professor of Economics, New
York University

IOIh OAANCASlSyJ
Gold continues to pour into this
country. The U. S. Treasury's
gold hoard will soon be 100000.
100000. The excess reserves of
the banks have increased, and
reached a new high level of over
three billion dollars.
This gold is flowing our way
for several reasons. % The dol.
lar is undervalued, its purchasing
power being greater in commodi.
ties than in gold. (2) The general
international situation is so un.
settled that foreigners send funds
here. 90 The growing initiation
here finds expression in the stock
market, and foreigners have been
Speculating. "a French politics
are causing so much uncertainty
that the stability of French fl
nances is in doubt, and conSe-
Quently fears of a devaluation Of
the franc and a collapse of the
"gold bloc" have increased.
OF late, the influx of gold has
been chiefly from France. AS a
result of the conditions men
toned above, the French franc
has fallen to the lowest exchange
rate in dollars since last spring.
Forward exchange is at big dis
count. The gold reserve of the
Bank of France, though still ade-
quate, is the lowest since 1882.
Accordingly, France has raised
her rediscount rate, which in
creases the cost of borrowing
money. Along with the necessity
for such action, has come de.
cline in French rentes govern
ment bondS).
1t is quite evident that the gold
movement represents a flight of
capital. It can hardly be ex-
planned as a mere bear drive on
French exchange. It is therefore
more doubtful that the orthodox
procedure of raising the redis-
count rate can check the move
ment now.
The lack of unity in French
thought is Illustrated by the clash
between "Fascists" and Socialists.
Drastic as Laval's policies have
been, they have not been Suffi-
cient to restore stability under
such political conditions. AS in
the United States, commercial bor-
rowing is small on account of un-
certainty, and money is put in
circulation largely by government
spending. This means deficits.
This whole situation not only
disturbs international trade, but
affects financial conditions in all
nations.
In this country it is tending
toward initiation, since it increases
both excess bank reserves, and
the New Dealers gold hoard
which they use to back up their
spending policy. Moreover, the
New Dealers are committed to
buy Is per cent as much silver
as we have gold, so this means
injecting more overvalued silver
certificates.
At the same time, this flow of
gold reminds us that what flows
in may flow out. For example,
if France were to revalue the
franc at some definite lower gold
content, it is probable that much
gold would return to France. This
would tend to check initiation
here, and foreign spectators
would sell some securities in Or
der to recall funds.
In general, the heightening of
uncertainty is tending to raise
real interest rates, no matter
what low Short-term IN oney
rates. may be fixed. Thus really
high grade bonds may be eX-
pected to work lower.
A collapse of the gold bloc
would deprive England of the
base she has used for her cur
rency control. For example. Eng
land has probably been selling
gold for francs, and then selling
francs for dollars. She then uses
dollars to buy pounds, thus "Sup-
porting her currency This is a
sort of gold exchange standard" :"
A collapse of the franc would
greatly complicate currency man.
agement, and probably hasten
moves to get the world back on
the gold standard. This would re-
quire, however, a breaking down
of the present nationaliStic policies
among nations, and that seems to
be a long way off.
There must first be stabiliza-
tion of currencies within the ma
tions, which will require some form
of convertibility of their paper
currencies into gold, so that prices
and wages will have some common
standard of measurement.
Meanwhile, gold becomes more
important. It is significant that
the stocks of gold producing COM
panies have strengthened.