CENTRE FOR ECONOMIC HISTORY THE AUSTRALIAN NATIONAL UNIVERSITY DISCUSSION PAPER SERIES MAKING A LAND FIT FOR A GOLD STANDARD: MONETARY POLICY IN AUSTRALIA 1920-1925 SELWYN CORNISH WILLIAM COLEMAN AUSTRALIAN NATIONAL UNIVERSITY DISCUSSION PAPER NO. 2014-06 MARCH 2014 THE AUSTRALIAN NATIONAL UNIVERSITY ACTON ACT 0200 AUSTRALIA T 61 2 6125 3590 F 61 2 6125 5124 E
[email protected] http://rse.anu.edu.au/CEH Making a Land Fit for a Gold Standard: Monetary Policy in Australia 1920-1925 Selwyn Cornish and William Coleman! 1 The Research School of Economics, College of Business and Economics, The Australian National University. Introduction On 4 February 1925 Sir Otto Niemeyer, Controller of Finance at the British Treasury, wrote to M.L. Shepherd, 0 fficial Secretary to the Australian High Commission in London, asking whether the Commonwealth Bank "ought not take steps to bring the Australian exchange banks to some glimmering of sense". The difficulty was that Australia, "a gold producing country, with an ample gold reserve of £25m, [was] actually importing gold, because the exchange banks are still charging 3% premium for pounds in Australia in spite of the fact that sterling was within 1- 1'12% of gold parity." South African banks, Niemeyer noted, had recently reduced their sterling discount and "it is obvious that your exchange banks ought to do the same without a moment's delay." If the banks demurred, he proposed that the Commonwealth Bank should itself "take the initiative in offering Australian pounds at a reasonable rate against sterling payment here". After all, the "present position", he asserted, "must be doing Australia great harm for no reasonable object whatever." (RBA C1.8-25/G/l, Niemeyer to Shepherd, 4 Febmary 1925) Thirty-four years later, in 1959, the Australian Treasury Representative in London, John Stone, discovered Niemeyer's letter in a closed file at Australia House and dispatched a copy to his superior in Canberra, Richard Randall, who, in rum, passed it on to the Deputy Governor of the Commonwealth Bank, E.B.