Evening star., 1949-07-03

Il world. Moreover, her currency,
: Fund Agreement, Is overvalued,
the free gold market 1t was quoted
at 10 per cent less.
This official generalization of
the pound had the effect of reduc-
ing exports, not only in sterling
value but also in volume. and this,
in turn, gave rise to unemploy-
ment and declining wages. In the
wake of these developments gold
took fight. In the end Britain
on September 81, 1931-again
abandoned the gold standard.
But Britain had maintained the
hegemony of the financial world
too long for her power and influ-
ence in that sphere to be lost in a
day, even though she might be in
solvent. So, in 1881, when she
abandoned the gold standard once
more and devalued her currency, a
group of nations that had for a
long time made it a practice to
keep an important part of their
Central Bank reserves in London
in the form of sterling rather than
in gold or other foreign exchange
followed her leadership immedi-
ately and unleaShed their curren-
cies from gold, fixing the external
values thereof in terms of sterling
rather than of gold. This group
was made up of both British and
non-British nations. Portugal,
Egypt and Iraq. non-British ma
tions. Immediately followed. In
1888 Sweden, Norway, Finland,
Denmark and Estonia joined. In
1886 Iran and Latvia came into
the group. For a short period Can
ada, among British nations, went
along with Britain, but ultimately
linked her dollar with the United
States dollar. For the most part
these nations were doing the prin-
cipal part of their foreign trade
with Britain and among them
selves, and this economic fact in
fuenced the decision to follow
Britain. In time the group became
known as the Sterling bloc"
Agreement on Sterling
When World War II struck, the
non-British nations left this
bloc" and exchanged controls
were initiated. Although movement
of funds within the area remained
free. a fence of exchange con-
trolls was placed about the entire
area" In addition. the nations in
the bloc" pooled their resources
Of gold and foreign exchange and
sold them to Britain for sterling,
agreeing to maintain their entire
liquid resources in the form Of
sterling. Britain, in return, agreed
to supply from this pool the dol
lars and other currencies which
members from time to time might
require for the purchase of essen
tial imports. BY 1945 these re-
sources, great as they were, were
virtually exhausted and in addi-
ton members of the bloc" had
credit balances in sterling on de-
post in London totaling in the
aggregate from $4,000, 100000 to
100000.
British statesmen recognized the
plight of their nation long before
World War II ended. In fact, they
realized that the waning power
of Britain had encouraged Hitler
to challenge her authority in Eu-
rope. Once during the prewar
period Prime Minister Chamber
lain rose in the House of Com
mons to recount Britain's financial
strength, concluding with the OBJ
servation that in any struggle
which might arise this would
weigh heavily on the side of the
victor. But Mr.. Chamberlain did
not understand his times: neither
did he understand the cost of
modern wars, for Britain even
then was virtually insolvent and
wholly incapable of financing the
great war which began in 1899.
Whatever wealth she possessed
was quickly exhausted. At this
point President Roosevelt con-
ceived "lend-lease, through which
the United States financed Brit
aims war effort.
Meanwhile, her statesmen were
planning for the postwar period
when Britain would be facing eco
nomic collapse for want Of gold.
The British economist and states
man Lord Keynes was q leading
advocate in favor of an interna-
tional agency to take over the
hegemony of the financial world
which, for want of sufficient gold,
Britain was forced to relinquish.
So the Breton Woods agreement
was born, in turn bringing forth
the international monetary fund.
Fund Ruling on Gold
Whether or not the fund estab-
fishes a new form of gold standard
is a question upon which there
is considerable debate. The ar
Iticles of agreement "pay oral
homage to gold" in that they pro-
vide. among other things. that
member countries must fix the par
values of their currencies in terms
of gold Cor the United States dol
lar Of the weight and fineness In
effect July l. 1944), and also that
each member must provide rs per
cent of its assigned quota or else
10 per cent of its net official hold
ings Of gold and United States
dollars. whichever is the smaller.
One of the principal purposes
of this fund. as set forth in
the articles of agreement. is "to
promote exchange stability, to
maintain orderly exchange ar
rangements among members, and
to avoid competitive exchange de-
probation" such as occurred In