Tentative or temporary devaluation but not yet stabilization
This is what is embraced by the President's proclamation fixing the value of the dollar at about 59 cents as compared the dollar at about 59 cents as compared to its former gold content. Broadly speaking. It means that Mr. Roosevelt has set an upper limit of 60 cents-indeed, Congress did that for him--and he has now fixed a lower limit of 59.06 to be exact, so that foreign governments may know there is less than one per cent of variation upward that Mr. Roosevelt can make and there is slightly over nine per cent that he can go downward.
As for the British and the French, they would prefer the United States to cause its dollar to go up rather than down, for that would mean the pound and franc would buy less American goods.
On the other hand, British and French goods would be getting higher prices whenever the dollar rose and was converted into more pounds or francs.
Mr. Roosevelt has no internation of varying the gold content unless conditions require it. He has a $2,000,000,000 stabilization or equalization fund ready to sell dollars if necessary in foreign exchange so as to keep the dollar hovering around the 59-cent level. Sometimes, however, an internal political situation, such as the fall of a ministry, may send the currency unit of a foreign country down, which is the same thing as forcing the dollar up. It is to offset these emergencies that the big equalization fund is to be employed.
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So far as domestic prices are concerned, Mr. Roosevelt would not like to send the dollar up in gold content, for that is the same thing as bringing down the price level-at least it might have that immediate effect. So the President has virtually been prevented from any deflationary move.
The big question is whether Mr. Roosevelt will some day wish to use the other nine points of his margin and depreciate the dollar to 50 cents. He might wish to do this if he felt the price level was not rising fast enough. The chances are he will no bring the dollar down any further than 59 cents because prices are rising now and there is every indication that there will be for a year or so anyway an increased demand for goods, certainly as long as public funds last and public projects are spending at the present rate or the accelerated rate that will come when the program is in full swing.
If the price level is in a healthy position and there is therefore no need to depreciate the dollar to aid prices inside the United States, the whole problem of stabilization or future revaluation will thus be narrowed to the difference between 59.06 and 60 cents. These may become the true upper and lower limits and finally a fairly stable position somewhere between these two points may be attained.
The procedure is not orthodox--that is, it has never been done quite the same way before-but that does not mean it is not sound. As a matter of fact, the President's method of temporary devaluation puts long term investors on their guard and keeps the money situation on a short term basis until everybody can see a little more clearly what's ahead.
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Mr. Roosevelt doesn't know what steps foreign governments may take to depreciate their own currencies. The President has two weapons of self-defense. He can buy their currencies, selling dollars, and thus hold exchange at a fixed point. Or he can vary the gold content again and depreciate the American dollar down to 50 cents as a measure of protection in a currency war.
What the President really wants is an understanding with Great Britain and France. Consultations will begin at once. It may be that Britain and France will see the wisdom of coming to an agreement at once in the interest of a revived world commerce. For no matter what are the temporary advantages, an uncertain monetary situation ultimately works to the detriment of business in all countries.
The President's latest proclamation, therefore, may be hailed as a constructive step forward--a movement in the direction of real stablization, though it may take several months yet to find out whether Congress was right in setting the upper limit at 60 cents or whether the dollar is really worth more than is claimed for it here.
In any event, the presence of American dollars abroad in large quantity and the fact that America is still exporting more goods than it is importing makes it difficult to determine an accurate valuation at this times. But even if it takes a year or so, the chances are that business and finance will slowly adjust itself to a 60-cent dollar and will make plans on that basis so that some day we may be in the position of ratifying the decision just made as having been in accordance with world factors