Exchange

Sterling Off Gold Standard

What Does It Mean To

South Seas?

SYDNEY, September 22.

YESTERDAY, with dramatic sud denness, it was announced that England had abandoned the gold stan dard. In other words, the Bank of England will no longer hand over one gold sovereign in return for one English bank note for £1.

To-day, the whole of Australia is speculating as to what this means in relation to Australian business condi tions. The reaction on Australian trade will give some measure of the probable effect upon future trading conditions in the Pacific Islands.

There is much argument “about it and about.” Some hold that Austra lian international exchange will not be altered —that it will still cost 30 per cent, to convert £100 Australian into £100 sterling. If future money quotations are to be given in terms of gold sovereigns that may be correct.

But, if future money quotations are to be given in terms of English pounds (which, presumably, will still carry the title of sterling) and English pounds are to be no longer based on gold, then it seems certain that there will be an adjustment of the existing exchange rate between Australian currency and sterling.

Presumably, the dollar and the franc will remain on their present gold basis —that is to say, 4.86 dollars and 123 francs to the gold sovereign. That seems certain, indeed, because the U.S.A. and France, between them, hold most of the world’s gold. Already, even to-day, a review of the world’s bourses shows sterling at an average discount of 20 per cent, in rela tion to gold. Let us suppose, for the sake of easy figures, that the dis count settles down at 10 per cent. That is to say, the international exchange is against sterling (the English pound) in relation to gold, to the extent of 10 per cent. Let us suppose, also, that the discount of the Australian pound in relation to gold remains at 30 per cent, on the world’s bourses there may purpose of international trade, the ex change between Australian currency and English currency, stated in terms of pounds, will in future be 20 per cent., instead of 30 per cent. If English cur rency is to be at a discount of 20 per cent, on the world’s bourses, there may be only 10 per cent, between the Eng lish and Australian pound.

The effect of this, of course, will be that it will be correspondingly difficult for Australia to sell in England. Where last week England had to put up a little more than £70 to buy £100 worth of Australian products, under the new condition of exchange at 20 per cent. she would have to put up £80 or more.

In other words, people selling Austra lian products, or selling in Australian currency, would have to get 10 per cent. more for their products from the Eng lish markets, in order to receive the same amount as previously in Austra lian currency.

The other side of the picture, of course, is that it will be 10 per cent. easier to purchase goods from Britain, However, that, relates only to trade with Britain —and in that lies the com forting feature of the situation so far as the Pacific Islands are concerned.

The main product of the South Seas— copra—is sold mostly in France, Ger many and the U.S.A. It is quite unlikely on present appearances that there will be any alteration in the Australian and South Seas exchange rates, so far as they relate to those countries. If there is to be any change it will probably be represented by a larger discount of Australian currency.

Therefore, the opportunities of selling copra in the future will be at least just as good as they have been in the past.

If copra sales are to be made through London, then copra prices will rise proportionately to the alteration in Australian exchange.

If there was any chance of the Aus tralian exchange rate falling in relation to countries outside the Empire, the copra prospects would be exceedingly blue. But the contrary appears to be the case.

The whole position at the moment of writing is exceedingly confused and complicated. It is very difficult to read the probabilities—but, taken by and large, they appear at the moment to be on the whole in favour of the Pacific Islands producer and trader.—

R.W.R.