2l8

ESSAYS IN PERSUASION

PART

of the Bank both to buy and to sell gold at ratesfixed for the time being would keep the dollar-sterling exchange steady within correspondinglimits, so that the exchange rate would not movewith every breath of wind but only when theBank had come to a considered judgement thata change was required for the sake of thestability of sterling prices.

If the bank-rate and the gold-rate in con-junction were leading to an excessive influx or anexcessive efflux of gold, the Bank of England would have to decide whether the flow was dueto an internal or to an external movement awayfrom stability. To fix our ideas, let us supposethat gold is flowing outwards. If this seemedto be due to a tendency of sterling to depreciatein terms of commodities, the correct remedywould be to raise the bank-rate. If, on theother hand, it was due to a tendency of gold toappreciate in terms of commodities, the correctremedy would be to raise the gold-rate (i.e. thebuying price for gold). If, however, the flowcould be explained by seasonal, or other passinginfluences, then it should be allowed to con-tinue (assuming, of course, that the Bank’ s goldreserves were equal to any probable calls onthem) unchecked, to be redressed later on bythe corresponding reaction.

It would effect an improvement in the tech-nique of the system here proposed, without alter-ing its fundamental characteristics, if the Bankof England were to quote a daily price, not onlyfor the purchase and sale of gold for immediate