Our Gold Reserves After the War
Frank A. Vanderlip
1916
The Annals of the American Academy of Political and Social Science
In these modern times the relationship of values the world around is in terms of gold. The standard of value, outside of China and a few unimportant countries, is gold, and local currencies are based upon gold. Even where the domestic currencies are temporarily of paper the relationship of this paper to gold is reckoned upon in all business transactions with the outside world. As soon as the war is over all countries involved in it which have ambitions in foreign trade may be expected to bring
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... he relationship between their paper currencies and gold back to normal at the earliest possible date, by reducing the issues of paper money and by increasing their reserve of the standard metal. Fluctuations in the value of a domestic currency will be an element of uncertainty, and therefore, a handicap, in all business transactions with other countries. With the domestic currency based upon gold reserves, it is obvious that the entire credit system of each country is based upon those reserves. Bank deposits, bank loans, commercial credits and obligations of every character rest at last upon the gold reserves, and there must be some reasonable relationship between the volume of current credit and the available stock of gold. THE GREAT SIGNIFICANCE OF GOLD Gold is the form of property by which the balances accruing in the trade and financial relations of nations are finally settled, and the effect of a flow of gold from one country to another has become familiar to all students of finance. When the balance of payments is against a country and gold leaves it in settlement, the effect is to reduce the base or foundation upon which the structure of credit in that country rests, and prudence requires that the volume of credit be accordingly reduced or held in check. Small movements of gold, evidently due to seasonal states of trade or other temporary conditions, may be negligible, but an outflow of gold exceeding normal proportions will receive the careful attention of financiers and busi-
doi:10.1177/000271621606800140
fatcat:stg44a56wzfenb2xrbs7gg3quq