RETURN TO GOLD IN 1925 217 
speaking world was revealed in the arrangements by which a 
gold credit of 200,000,000 dollars was set up by the Federal 
Reserve System for the use of the Bank of England should the 
necessity arise. The Bank of England, on its side, inspired an 
unofficial embargo upon British capital investments overseas. 
By this means the threatened world cleavage between gold 
currency countries led by the United States, and paper currency 
countries led by Great Britain, was averted. 
The monetary adjustments called for by the decision to 
return to gold bore very lightly upon the Australian financial 
authorities. By a singularly fortunate coincidence Australian 
currency was at a substantial premium.! The adjustments 
connected with the restoration were made so easily that the 
significance of the step was scarcely realized by bankers or 
business men in Australia. Few apprehended the part that 
happy chance, in the shape of plentiful funds awaiting transfer 
to Australia, played in the smoothly operated change ; and still 
fewer recognized in after events the presence of depressing 
factors arising out of the necessary financial adjustments. 
These fortuitous funds in London were the substantial un- 
transferred balances of large loans that had been floated in 1924, 
some money accumulated from a succession of good seasons, 
and the very considerable Bawra dividends. At the very 
moment when there was a paramount necessity for the balance 
of international payments to be heavily in Australia’s favour 
that desirable circumstance existed.2 Little wonder, therefore, 
that the real deflation which ensued was masked for the time 
being, and that the most effective factor operating to conceal 
the true inwardness of the situation was once again the great 
volume of capital borrowing. 
! ‘During 1924 the exchanges were favourable (to Australia) and the price-level 
Fell to parity with U.S.A. prices. When the sterling dollar exchange moved towards 
parity at the beginning of 1925 it was profitable to import gold from the United 
States for the Australian pound was at a premium with the British. As the banks 
had been complaining of low cash reserves in Australia and ample funds in London 
this movement was encouraged, and imports during the early months of 1925 
amounted to over £10,000,000.'—Copland in Foreign Banking Systems, p. 53. 
* For a time, indeed, the volume of funds in London was a source of great 
smbarrassment to bankers in Australia, and the buying rate was at one period 
70s. per cent. discount. This situation ultimately, of course, had the effect of dis- 
souraging exports and encouraging imports, and this in the end helved to restore 
the equilibrium of indebtedness. 
a1 
rd