21 Pages

the Bank, unlike the French Bank, cannot refuse to redeem

State credit-are called in whenever the ordinary merchant bill credit is insufficient. It is true that every year even larger sums of gold pass from one country to another, but they consist largely of the necessary movement of newly produced gold from the producing countries to all other countries, according to their need for, or capacity to absorb, gold. Or it may be due to the fact that certain countries are about to pass over from an inconvertible paper or a silver standard to a gold standard and therefore desire to attract larger amounts of gold. Since the actual costs of transport of gold are very low, they are of little importance, whether the necessary stocks are derived from the countries of production or not. Frequently trade relations and the position of the foreign exchanges may make it cheaper to procure gold direct from a neighbouring country, which will recoup itself again from other countries or directly from the gold-producing areas. These gold movements are therefore an effect and not a cause of the maintenance of large gold reserves. Again, as far as the regulation of the balance of trade by means of gold is concerned, presumably only a slight further advance on the developments already achieved in international banking is required in order to render entirely superfluous the meaningless shipments of cases of gold to and from the central banks. All that is required is an agreement between these banks to sell to the public bills payable at sight on each other, disregarding any difference in the rate of exchange, i.e. at par. A more radical step would be for the central banks to agree to redeem each other’s notes-and also the gold currencies of their various countries, though this would not often be necessaryin the notes and currency of their own country, also at par. If this were done there would, of course, still exist a difference in value between long-and short-term bills (or bills payable at sight) of the same nominal amount, but the rate for the latter would always remain at par or very near it, as otherwise it would be possible to purchase bank drafts or to send notes by registered post. Gold shipments under such conditions would never be profitable unless the receiver desired gold for some reason and was willing to pay transport costs, i.e. for industrial purposes

or for the banks’ own use if they were compelled to strengthen their gold reserves. I t would be difficult to maintain that such an agreement is impossible even at the present moment. It existed between the Scandinavian central banks until 1905. In 1885 they agreed to sell bills payable at sight on each other without any difference in exchange rate, a step which according to the view of Heckscher mentioned above “ contributed greatly to a greater general stability of the exchange rate on foreign bills between the three countries ; was of advantage to wholesale trade in so far as the market for the purchase and sale of bills was extended, and indirectly to consumers, though possibly not to the bankers, who lost the opportunity for profitable arbitrage transactions ’’. After a number of years this agreement was supplemented by another, by which the three northern central banks expressly bound themselves to redeem each other’s notes free of charge, so that remittances of gold on private account between the Scandinavian countries need never be necessary. If such an agreement became universal, then, of course, the exchange of these notes and the balancing of the amounts drawn upon each other would be the banks’ affair and could be facilitated by such a common “ world clearing house ” as has often been projected.