354

A TREATISE ON MONEY

BE. IV

first, that there should be a stable policy on the partof Central Banks as to what the normal aggregate oftheir gold-exchange reserves should be ; and, secondly,that these reserves should all be concentrated in asingle centre, or, if divided between several centres,that the normal aggregate in each centre should bestable, so that there is no risk of movement (under theinfluence ( e.g .) of differential rates of interest) betweenone centre and another. If these conditions are notfulfilled, then there must be some sacrifice either ofreciprocal action or of economy of gold.

At any rate, a system must be liable to work in aprecarious and unsatisfactory manner, in which thedegree of reliance of the Central Banks of the world,taken as a whole, on gold-exchange reserves as com-pared with actual gold is highly variable, and inwhich such reserves are capable of moving in largeamounts from one centre to another, e.g. between NewYork and London, under the influence of changes inthe rate of interest, which changes may be determinedby local and not by international considerations.Indeed the general effect of the above discussion is,I think, to lead up to the conclusion that the onlysatisfactory way of working the gold-exchange systemwould be under the aegis of an international bank,which would be the sole depository of Central Bank gold-exchange reserves ; the aggregate of whose bal-ances in favour of Central Banks would be determinedby considerations of international policy; and thebalances of which would not normally be withdrawnin gold but merely transferred from one Central Bank to another. In such a system the proportion of theirreserves held by Central Banks at the InternationalBank would be truly a substitute for gold, whilst thebenefits of reciprocal action between one country andanother would be fully maintained. Further examina-tion of the project of an International Bank must, how-ever, be postponed to Vol. ii. Book VII. Chapter 38.