Evening star. [volume] (Washington, D.C.) 1854-1972, 1960-10-23
A Rash to Be Watched

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BY itself, the rash OF speculation in
gold that broke out last week in foreign
markets IS not an ailment AS with many
rasheS, it could more accurately be con-
sidered a symptom. But as with many
symptoms, neither the precise cause nor
the portent is Immediately or fully clear.
1t could, in fact, disappear, and it did
subSide in Fridays trading.
1t is, however, properly a matter of
concern and particularly so in the United
States, since the American dollar is the
basic currency supplementing gold in
the monetary reserves Of the free world.
This has been so because the dollar is
the strongest and most respected cur
rency in the free world, backed by gold
stock approximately equal to that held
by all other free nations combined.
Preference for gold rather than dollars,
however, as indicated by the action Of
international traders in bidding up the
gold price from the $35-per-ounce value,
which We have f1xed by statute, to more
than $40 per ounce, implies decreasing
confidence in the dollar.
There were rumorS, for example, in
the foreign markets that our own Gov
eminent was considering deliberate
devaluation of the dollar, lie. an increase
the offlcial dollar price of gold. Al
though this can be done only with APP
proval Of Congress, not now in session,
Secretary Of Treasury Anderson moved
promptly to Squelch the rumors by an
nouncing firm position to maintain
the dollar at its existing gold parity"
Presumably, 1t was this assurance that
Gained the gold market on Friday.
There still remains, however, room
for question about the continuing sta
bility of the dollar. This question de-
ponds upon much more than preServa-
ton, rs long as possible, of the $S5-per-
ounce price for gold. It depends, also,
on maintaining the whole range of gov
ernmental fiscal operations and none
tary policies in such way as to pre-
vent imitation and debasement Of our
currency.
Just as In the case Of personal bank
ing, international banking depends upon
depositorS' confidence that we are run
ming the business Soundly and pru-
IDENTIFY. If dollar holders abroad fear
that we are not doing this, or that pie
in-the-Sky promises of political plat
forms threaten the value Of our cur
rency as Mr.. Anderson has warned could
happen under the Democratic platform,
the dollar holders will prefer gold. The
consequences Of real flight from the
dollar would be grave ones.
For the past several years, we have
been running deficit in the interna-
tional balance of payments-meaning
that our total outflow of dollars for all
purposes abroad has exceeded our in
come. With the accumulation Of dollar
balances in foreign hands, there are
short-term claims against us now total
ling about SITS billion. II they wish,
because they fear to hold dollar credits,
the owners of these balances may claim
payment in gold. They have done so,
in part, during the past three years and
our gold reserves have dropped steadily
during that period to about $18.6 billion.
If continued gold claims should threaten
our statutory reserve requirement Of
about $11 billion, devaluation giving
our diminished supply Of gold an arti.
f1cially higher dollar value) might be
forced upon us.
In such event, of course, the dollar
will have lost confidence abroad. Mr..
Anderson sums up the effect which this
development would have, as follows: "If
ever confidence in the dollar is impaired,
the monetary system of all the worlds
free nations would be dealt severe and
damaging blow. With much of the base
for their own currencies thus impaired,
their money to support production and
trade would inevitably shrink. Com
merce would be disrupted, depression
and unemployment could set in. In
short, international communism would
have gained tremendous victory with
out firing a shot,"
These are reasons enough to keep
watch on the symptom" of gold specu-
lation abroad, and on monetary policies
at home.