Evening star., 1939-01-01
u. ). Now Custodian
For So Per Cent Of
World Gold ~
Other Nations Barter;
Midas Touch Proves
Mixed Blessing
BY Cambridge ASsociates.

BY Cambridge Associates.
Through lack of gold to exchange
for goods, number of nations have
been forced to resort to the age-old
custom of barter in international
trade. Meanwhile, the United States,
with so per cent of the worlds gold,
consistently reports favorable bal
ance Of trade and does not need the
gold for international settlements.
In the last nine years the amount
Of gold in this country has nearly
doubled, although the total gold
stock of all nations has gained only
one third.
Against this enormous pressure,
the attempts of the State Depart
ment to increase the exchange Of
goods between this and other ma
tions, worthy as it is, has only served
to prevent an absolute cessation OF
foreign trade. While this country
is not strait-jacketed by the sur
plus of gold as other countries are
by the lack of it, it nevertheless is
bothersome problem, for which no
method of solution has yet been
found. 1t is, indeed, questionable
whether a reverse Of the dollar de-
valuation would re-establish ball
ance between currencies at this time,
even if it were politically and eco
nomically feasible.
Confidence in other currencies Is
so low that there has been a strik-
ing increase in recent months in the
total of our own currency in cir
culation, rejecting foreign boarding
of American dollars. Even though
these certificates are not exchange
able for gold, their permanence OF
value in terms of commodity prices
! is regarded more sure than that OF
most other leading currencies. This
again leads to further shipments Of
gold to these shores.
Prove of Little Value.
The experiment of sterilization
and the increase of reserve require
ments proved of little value because
the need for the control of credit
imitation never developed. Further.
more, it proved politically dangerou!
because it was given the credit ir
some quarters with having been G
contributory factor to the late re.
cession. 1t is not likely that repe.
tition of these moves will soon bt
undertaken. but many banks, fear.
full that it may. are assuring them.
selves that it will cause them nc
embarrassment And this mean.
that they are restricting their tota
of loans and investments to point
where sudden liquidation will not be
necessary. The net effect of thes.
credit control moves. therefore, ha,
tended to increase their caution ir
a period when the Government il
anxious for them to liberalize loan
policies.
Presuming that dissipation of tn.
fear of further weakness in the lead.
ing foreign currencies can be accom-.
plished-wlich is matter requiring
the passage of time as well as the
establishment of harmonious in.
ternational relationships-our Gov.
ernment will face an even more
difficult problem. Much of the golt
in this country is so-called "hol
money seeking refuge: nobody
knows how much When genera
confidence is brought back, this golc
will return to its proper owners.
Outcome Uncertain.
The speed of this flow and 1t,
duration will be solely matter fol
conjecture, and who knows how
much effect it will have on interes
rates in this country It is conceiv.
able that panic might develop ir
which the high-grade bond marke
would suffer sharp decline. Thi.
would be troublesome both to in.
dustry seeking new capital and tn,
Federal Government in its program
of deficit financing. A fnancia
panic of this sort probably would be
relatively short lived, but it would
have far-reaching effects.
There is keen realization of these
dangers among the financial admin.
lstrators OF the Government, anc
many plans for easing the eventua
outward flow of gold have been con.
sloered. When the need definitely
arises, the financial community NAV
be surprised by a sudden edict cal.
culated to reduce the effects of tn.
disturbance as much as possible
When 1t comes, wiser heads vii
realize that the move represents Ions
labor OF the best intellect on the
subject, and that there will be 6
price to pay for the use of a large
part of the worlds gold which viii
be impossible tn avoid