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Y.
INTERNATIONAL CHAMBER OF COMMERCE.

Berlin Congress.
Thursday, l.VII.1937 10 a.m.
Group Meeting.

Document C.B.E.F.12
Original
(I.VII.1937.me)

MONETARY

POLICY.

Speech by
Mr. Arthur R. GUINNESS (United Kingdom)

I have been asked to open the debate on the Resolution on
Monetary Policy, which is already in your hands. In this connection,
I should like to recall to you the Resolutions onoMonetary Policy
passed at our last Congress in Paris in 1935*
^ u will remember
that the chief aim of this Resolution was to urge the principal governments concerned to inaugurate immediately appropriate consultations
for the purpose of formulating and putting into effect an agreement
for provisional stabilization, with a view to eventual restoration
of the foreign exchange rates on the basis of gold.
I would also draw your attention to the very valuable work
which was done by the joint committee of the Carnegie Endowment for
Peace and the International Chamber of Commerce, the results of whose
work have been published in two volumes.
In the resolution which I
quoted above, and in the reports of the Joint Committee of the International Chamber of Commerce and the Carnegie Endowment, we recognised
that to go back to an effective de jure gold standard governments
would have,, to take measures to adjust their national economic financial
policies to all'ow of the functioning of a gold standard over a long
period. ^he'advice which we tendered to the governments has been
carried into effect in the Tripartite Declaration made by the United
States, Great Britain and Franfie last September, and gave us all we
asked for in the way of a preliminary agreement as envisaged by their
policy., .and we in London therefore particularly welcomed this Declaration", which has since been joined by Switzerland, Belgium and Holland,
as offering a start in the program vhich we envisaged two years ago.
I" Would particularly commend to Delegates the very valuable reports of
the joint committee of the International Chamber of Commerce and the
Carnegie Endowment as offering an excellent basis for a study of this
problem, and I think greet credit is due to the International Chamber
for the part they have taken in this question.
The importance of the Tripartite Declaration is not only
that we achieved reasonable stability between the exchanges of the six
countries, but that we got real international co-operation among the
different countries and central banks concerned, so that the men who
have to work on the agreement from day to day get to know each other,
understand each other's points of view and are able, therefore, to
co-operate with each other in the widest possible sense, this understanding making for mutual trust and appreciation and the very realest
form of collaboration.
This, I think, is a very important point in
the mutual working of the Tripartite Declaration.
I record with profound regret that it may be necessary for
some readjustment to be made in the French currency situation, which
may be envisaged from the closing of the stock exchange and the
exchange market in Paris, but I am certain that this readjustment will
be carried out more smoothly through the working of the Tripartite
Declaration than it could possibly have been otherwise.
I am unable
to say more on this subject, as our news from Paris is so limited, but
the general feeling is that there will have to be some readjustment in
the exchange value of the Franc. However, as we have so often



.

I
stressed in our Resolutions, unless there is equilibrium both in
budget and in prices, exchange stability cannot be maintained.
I remember that at our last Congress many members present
were exceedingly nervous at what might happen unless the nations went
back promptly to de jure stabilization on a gold basis.
Members
foresaw chaos in international trade, falls in commodities and raw
material prices, and all sorts of disasters.
In fact, over the period
of the lest two years we have seen 8 period of better international
trade, rising raw commodity prices and generally a better feeling both
internally and externally in business circles, although, of course, we
would welcome a still further development of international trade,
which today is far behind thst of the years from 1926 to 1930.
One of the factors which I believe has been a great stabilizing force over the last two years has been the steadiness of sterling
exchange.
We in London have not yet gone back to a de jure stabilization, or even to a de facto stabilization, but over the last two years
there has been great stability in the sterling rate as measured against
gold.
The figures show that the actual movement in the sterling
exchange has only been about 1.4$ above the average price for gold, or
a drop below the average price of 2.5$, a total fluctuation of under
over the last two years, the average price being 14Os.9d.
This shows
that we have in fact reached real stability in exchange rates, and
that this stability may give real confidence to traders in sterling
exchange.
You will notice that the period I have taken covers 18
months before the Tripartite Agreement was reached, so that this
stability had already been achieved quite a period before the signing
of that Declaration.
I think that greet credit is due to the Old Lady
of Threadneedle Street, as we in the City affectionately call the Bank
of England, for the way in which the Equilization Fund has been operated and for her excellent ironing out of minor fluctuations.
In addition to the British Dominions, other than Canada and
Newfoundland, I think I em safe in saying that Scandinavia and Iceland,
Finland, Estonia, Portugal, Egypt, Siam end the Argentine, and since
1936 Latvia and Greece, have been stabilizing their currencies on
sterling, in what is called the sterling area, so that if we add those
covered by the Tripartite Declaration we have a very large area, or a
total of 20 countries, v>ho today have a real stability in their currencies and thus give a strong help to international trade - a very great
achievement.
Sir John Simon in the House of Commons on Monday evening gave
an interesting account of the operation of the British Exchange Equalization Fund. Introducing the motion to increase the Fund by
£200,000,000 to £550,000,000, he said that on the 30th Kerch last the
Fund held 26,674*000 fine ounces of gold, equivalent, at 140s. per oz.,
to £176,718,000.
In addition the Bank of England held at that date
73,842,000 fine ounces, equivalent to £516,894,000, a total of
£700,000,000.
I should like to draw attention to the fact that in
calculating the gold in the Bank of England Return, it is taken in
accordance with the lav at 84s.ll1/^d., so that one has to re-value the
gold on a basis of £7 an ounce to get todeyTs value.
Sir John Simon
stated that while the Fund had to work in secrecy for its current
operations, he proposed in future to give the figures of each halfyear's operations three months in arrears, i.e. the figures for the
half year ending 31st March would be published on 30th June, and the
figures for the half year ending 30th September would be published on
31st December.
I feel that v'ith this great bastion of gold all our
friends who are interested in what happens to sterling exchange (since
the countries in the sterling area are basing their daily quotations
on sterling) can have the utmost confidence in the position of sterling
and the ability of the Bank of England to maintain the stability of
sterling as it has been maintained over the last two years.
You will want me to say a few word<§ about the gold situation.
Since 1931> there has undoubtedly been a very great increase in both
the quantity of gold available for monetary purposes in the hsnds of




governments and central banks, and on account of the increased price of
gold when measured in terms of money a very great increase.
According
to the best available information, the monetary value of gold available
as a basis of credit in the hands of governments and cetitral banks is
today the equivalent of 4>330,000,000 Pounds at 140 shillings an ounce,
rather less then three times the figure available fifteen years ago,
taking the then price of 85 shillings an ounce.
The published figures
in quantities are 619 million fine ounces as at the end of 193^» a s
against 497 million fine ounces at the end of 1929, giving an increase
of a little more than 25%, or, allowing for Russia, somewhere about 33$.
The high price of gold has caused increased output by the mines, and
much dishoarding of gold.
India alone provided 35»° 00 ,000 fine ounces,
equivalent in value to nearly £2^0,000,000 over the period 1931 to 1936.
However, the flow of hoarded gold from India is diminishing in quantity,
and other hoarded gold has been sold to a l~rge extent, so that the
supply from these quarters need not necessarily continue.
There is no
doubt that there is a difficult question about the supply of gold which
has to be faced.
However, I feel that much too much stress has been
laid by the business community, and much too much alarm caused, by the
effects that might be caused by some readjustment in the price of gold
bullion in London and New York.
It seems to me that what really
matters is that there should be stability between the leading foreign
exchanges, which stability, as I have already shown, has been achieved
between many of the principal currencies of the world, and which we hope
will be further developed by further adherence to the Tripartite
Declaration.
It is essential however that if some Hdjustment has to
be made it should not be made unilaterally but by multilateral agreement,
so that the exchange equilibrium will not be disturbed thereby; i.e.
if it is necessary to lower the price of gold five dollars in New York,
it should then be lowered in London by £l., so that the Pound and the
Dollar will remain on their present basis.
Many people fear that if the price of gold is lowered there
will be a corresponding fall in commodity values.
Much has been
written on this problem, but the one broad outstanding fact to me
seems to be that while we have today between two and three times the
amount of monetary gold in the Central Banks and Governments which
could be used as a basis for credit, neither the prices of raw materials
nor of finished goods are today above the prices that they stood at in
1929.
Why, therefore, should one expect a fall in the price of commodities should some readjustment of the gold price be necessary.
If
you will refer to the blue pamphlet of statistics which we have been
given with our Congress documents, you will notice that there is only
one country (Denmark) of all the countries cited there, which include
the principal countries of the world, in which the cost of living or
the indices of wholesale prices exceed those of 1929.
Why, therefore,
should the price fall.

c

What really affects the price of commodities, in my opinion,
is the supply and demand, and today the general position of raw materials is a much healthier one than three or four years ago.
In the
period 1932-34 w e na(^ a buyers market, since then surpluses have been
eliminated, partly by natural laws, lover prices curtailing output, and
nature herself eliminating surpluses by droughts and bad harvests.
Increased demands and better business have created a demand today, so
that we have now a sellers market and if we can only get international
trade going again in some real proportion of its previous volume, there
appears no reason to expect a substantial fall even though it may be
necessary to make some adjustment in gold prices in due course.
As to
whether some adjustment may ultimately be necessary, there is one fact
that I should like to have you bear in mind, and that is what is called
the mystic quality of gold.
I believe myself that this mystic quality
in the past consisted of the fsct that it cost nearly a Pound to mine a
Sovereign's worth of gold, but with the present price the profits are
much higher, leading to increased production and increased exploration
for new gold areas, and if gold is to lose its scarcity value or its
mystic value we shall lose the only measuring stick v-hich the world for
centuries has accepted, because of its scarcity value, as the real
measure of value of commodities and services.




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I do not believe anybody today knows whether suoh adjustment
may be necessary.
I believe that the wisest policy is to extend the
area of currency agreement covered by the Tripartite Declaration,leaving
for the present the question of gold aside, extend it to its widest
possible limits by the adherence of as many nations as possible and
then, if necessary, put more gold into the currency by general agreement, and not by unilateral action of one particular country, in this
way maintaining parity of exchanges.
An adjustment made in this way
with general co-operation will alleviate the dangers of deflation and
fall in values, and the sentimental ill effects will be rapidly adjusted.

c

There is no doubt ample opportunity for the use of gold in
world trade.
A table of distribution of gold shows that Europe today
holds 44• 9f° °f the world resources in gold, /^,Vf> being in the hands
of the United States, whereas before the war Europe had 63$, or three
times the amount of gold then held by America.
The position of Great
Britain has not altered greatly.
We held 8.8$ in 1915, and 10.8$ at
the end of 1936.
France, on the other hand, held 19.4^ in 1913 and
12.5$ in 1930Great changes have taken place in Germany, which held
11.1J6 in 1913 and only .2$ in 1936.
Gold is very badly distributed,
some countries having a great shortage and other countries so replete
with gold and hot money that they have to sterilise it and suffer a
headache from it.
The result is that the United States has today over
1,000,000,000 dollars of gold sterilized in the effort to restrict a
gold inflation in the credit structure and they have applied severe
measures of restriction throughout the Federal Reserve System by forcing banks to keep abnormal reserves, and they are making every effort
to restrict .the effect of this gold surplus on their price structure,
'when a humffl^ffets a headache in a over-heated room a simple remedy is
to open the window and let in the fresh air, and undoubtedly some
redistribution of gold could be effected by opening the window of
international trade and exchanging goods and services by lowering
tariff barriers and letting in the fresh air, a policy, I understand,
advocated by Mr. Cordell Hull.
But to readjust the European situation
it is necessary that we should have more than fresh air.
I should
like to endorse what Mr. D'Arcy Cooper said here yesterdajr, namely
that subject to a far-reaching scheme for European political conciliation, I should like to see a large gold credit or loan on a reasonable
rate of interest granted by the United States and Great Britain to
Germany to allow her to get rid of exchange controls and to get back
to freedom of currency and abolition of all the trade restrictions
which hinder German commerce today with the external world. I notice
Dr. Schacht is building a fine new structure for the Reichsbank and
has plenty of room there for a substantial quantity of gold, and no
better investment could be made of some of the gold which is being
hoarded in Threadneedle Street and in Kentucky than a loan to Germany
to bring back 66,000,000 people into the orbit of world trade.
I
believe that the smaller nations of South-Eastern Europe would be able
immediately to get rid of their exchange restrictions and controls
once there has been a readjustment of the German situation, since they
essentially depend on her for their markets and their trade.
The
essential problem of European restrictions rests right here in Berlin.
It is essential that we should have some readjustment and
agreement on the political situation.
Without some agreement,
business men may sit here and discuss measures of stabilization and
measures to improve trade, but they will be of no avail.
I think I
cannot do better than copy Minister President Goering, who in his
opening speech made reference to a speech by bir Neville Henderson
recently in Berlin.
He was referring to relations between Great
Britain and Germany.
Ke said, "Although I have only been here a few
weeks, I have heard it constantly repeated that Great Britain is
trying to hem Germany in on every side.
I can assure you that Great
Britain is making no such attempt, and has no desire to make it.
Commercial rivalry, such as there is always bound to be between us,
is a stimulus which benefits consumers, and which never has been and
never will be a cause of national ill feeling or ill will in England.




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The most vital problems of Germany today have to do with raw
materials.
I do not "believe that Germany will find in any country
more than in Great Britain an ever willingness to do what may be
possible to help her in this matter.
Where more than in London, with
its long financial experience, has there been greater readiness shown
to help others and to discuss their difficulties.
I can tell you
quite definitely and truly that what England wants, and all that
England wants, is peace in Europe and in a world that surely had
enough of war in those ghastly years of 1914 ^° 19^8. Guarantee us
peace and peaceful evolution in Europe and Germany will find that she
has no more sincere and more useful friend in the world than Great
Britain."
These, gentlemen, were the words of our Ambassador at a
dinner of welcome given him by the Deutsch - Englische Gesellschaft,
and I know that they find an echo in the heart of every British
delegate here.
We need a guarantee of peace, and what better guarantee than an understanding and friendly co-operation between England
and Germany.
Before one can reach understandings, one must get to
know each other, sit down and talk matters over around a table, and
I say from the bottom of my heart that it is with the profoundest
regret #hat we understand a visit recently proposed of a leading
German Statesman to London has been postponed.
How can we get
together without contact, and we business men know that we must take
opportunities as they occur.
I concur with our President in his
remarks about missed opportunities at the opening session.
A great
opportunity has been missed, to our profound regret.




I have taken the motto of Dr. ochacht for this Congress.
"We sought the truth, and had the courage to speak it."