Ill

THE RETURN TO GOLD

2 55

an equal extent. Moreover, our credit as aborrower is still very good. By paying asufficiently high rate of interest, we can not onlymeet any deficit but the Governor can borrow,in addition, whatever quantity of gold it mayamuse him to publish in his weekly return.

The President of the Board of Trade calcu-lates that, during the year ended last May, it isprobable that there was no actual deficit on ourtrade account, which was about square. If thisis correct, there must be a substantial deficitnow. In addition, the embargo on foreign in-vestment is only partially successful. It cannothold back all types of foreign issues and it can-not prevent British investors from purchasingsecurities direct from New York . It is here,therefore, that the Bank of England ’s otherremedy comes in. By maintaining discountrates in London at a sufficient margin abovediscount rates in New York , it can induce theNew York money market to lend a sufficientsum to the London money market to balanceboth our trade deficit and the foreign invest-ments which British investors are still buying inspite of the embargo. Besides, when once wehave offered high rates of interest to attractfunds from the New York short-loan market,we have to continue them, even though we haveno need to increase our borrowings, in orderto retain what we have already borrowed.

Nevertheless, the policy of maintaining moneyrates in London at a level which will attractand retain loans from New York does not really