Evening star. [volume] (Washington, D.C.) 1854-1972, 1938-08-20
LITTLE HOPE SEEN
Of STERILIZATION
Fixing Of Pound and Dollar
Involves Many Risks
for British.
special Dispatc h to The Star.


NEW YORK, Aug 20.-In its week.
ly summary of the general business
situation the Standard Statistics Co.
Of New York currently comments as
follows:
Under present circumstances sta
bilization Of the pound would appear
to involve too many risks from the
British standpoint to warrant serious
consideration. While it is possible
that closer monetary cooperation may
result from the proposed Anglo
American commercial agreement,
and there may be commitment to
minimize future fluctuations in the
pound, actual sterilization Is not ex-
pected at an early date.
THE drop in the pound and the
presence of Secretary Morgenthau in
Europe have brought strong revival
of rumors that the Anglo-American
commercial pact would contain cur
rency agreement. More specifically,
the opinion is widely held, despite
official denials on both sides of the
Atlantic. that the pound and the
dollar would be stabilized at the old
parity. Judging from the record of
monetary changes over the last seven
years, If any such agreement is con-
templated, the world will be kept ig-
norant of it until the last minute.
New Set Of Problems.
THE fundamental question is hardly
l,of ~ Ia nf ctohili1a
ton as such, but rather whether it
is possible at the present time. The
chief cause of the breakdown Of the
pre-war currency relationships lay in
the accumulation of excessive debt.
The debt burden has since been eased
to large extent by the depreciation
of the major currencies, the virtual
reputation of intergovernmental debts
and reparations, the repatriation of
| external debts at default levels and
other means, but a new set of prob
lens has developed.
THE foremost obstacle to stabiliza-
| ton is political uncertainty, which is
a primary influence on the movement
of short-term balances from one money
market to another. At present such
movements are facilitated by the OPP
Grafton of exchange Sterilization funds,
and it is possible that the present
machinery could be maintained on
modified scale after the establish
ment of fixed exchange values. Sta
bilization, however, implies the COM
mitment to deliver gold at set price
and to protect the currency by ma
nipulation of the bank rate. This
system operated admirably prior to
the war, but 1t is exceedingly ques-
tionable as to whether any currency
is now strong enough to withstand
rapid capital movements. 1t is also
difficult to foresee any willingness on
| the part of European countries to
runsthe risk of gold losses to potential
enemies.
Would Boost Bank Rate.
"As a further consideration Of hard
" less importance Sterilization would
tend to place internal economic and
financial policies at the mercy Of out
side influences. For example. ortho-
doxy would call for an increase in
the British bank rate now to protect
the pound by attracting foreign funds
for investment.
with the world in its present
temper. however, it is highly improb-
able that the desired results could
be obtained by this method. and, as
has often proved to be the case in the
past, such a move might arouse sus-
picion rather than the desire to take
advantage Of an increased rate OF
interest. Meanwhile, to continue the
hypothesis, q sudden rise in interest
rates would involve direct and dis
advantageous departure from the
credit policy pursued by the British
authorities since abandonment OF gold
| in 1921