REPORT OE THE ROYAL MINT COMMITTEE.

11

H.—No. 6,

In practice, it may be usual to lower the rate of exchange in anticipation of the excess of exports to come forward, and vice versa. Nevertheless, the rate of exchange is governed by the balance of trade existing or anticipated ; and a rise or fall in the local price of exports for England is clearly indicated by a rise or fall in the rate of exchange on bills drawn against them. The cause of the fluctuation in the balance of trade between Australia and England when there was no certain market for gold nearer to this country than England may be illustrated as follows: —If the value of the produce of Victoria exported annually to Great Britain be taken at £9,300,000, the proportion in gold would be about £5,400,000, in wool about £3,300,000, and in miscellaneous articles about £600,000. The bulk of the wool leaves the country in the four months ending with February ; but the gold and miscellaneous articles are exported at a fairly uniform rate throughout the year. As the exports must be paid for by imports, it will be sufficiently accurate for the purpose of this illustration if it be assumed that the value annually imported is equal to the value exported, and that the imports arrive in the country at the uniform rate of £775,000 monthly. Under these conditions it appears that in the four months ending in February there would be— (In Gold ... ... ... ... ... £1,800,000 Exported ]In Wool ... ... .. ... ... 3,300,000 (in Miscellaneous ... ... ... ... 200,000 Total ... ... ... ... £5,300,000 Imported ... ... ... ... ... ... 3,100,000 Excess of Exports ... ... ... £2,200,000 In the following eight months there would be — fin Gold ... ... ... ... ... £3,600,000 Exported < In Wool ... ... ... ... ... Nil. (In Miscellaneous ... ... ... ... 400,000 Total ... ... ... ... £4,000,000 Imported ... ... ... ... ... ... 6,200,000 Excess of Imports ... ... ... £2,200,000 In the first period the excess of exports would cause a fall in their local price, and in the rate of exchange on bills drawn against them ; and in the second period the excess of imports would cause a rise in the price of exports, as well as of bills drawn against them. The fluctuation in the local price of wool or of gold, which thus affects the producer whether he sells his produce in the local market or takes an advance upon it, being due to the prevailing balance of trade with England, is an evil for which, under the conditions which existed previous to the establishment of a Mint in Sydney, there was no practical remedy or relief. A disturbance in the balance of trade may be diminished, and a fall in the price of exports be restrained, if a portion is withheld from shipment or sale for export; but unless some other equally advantageous or better market is found for the portion withheld, there is no commercial inducement to act thus, and it was not until the Sydney Mint was established that such a market was provided. A Mint, by converting gold into coin, practically purchases gold; and if the capacity of the Mint for coining is unlimited, and the charge for the service is uniform, it is an unlimited market for the disposal of gold at one uniform price. If, also, the charge is so small as to cause the Mint price to be as high as the market price when the latter is at its highest, the local price of gold cannot fall, as the Mint will purchase all the gold when the market price falls below the Mint price, and it will compete with the market for the purchase of gold when the market price is at its highest,—that is, when gold is most in demand for remittance and export. The Mint thus becomes an advantageous local market for the disposal of gold when exports are coming forward in excess ; and by purchasing at this period it retains one local product for a time in the country, reduces the excess, and restrains the fall in price of exports, as well as of bills drawn against them. It does not, however, permanently retain the gold in the country. It has, with advantage to the producer and to exporters generally, converted the gold into a shape convenient for local use, as well as for remittance to other countries than England without destroying its value as bullion. When the export of wool has ceased, the gold coin which may be in the country in excess of local requirements will be exported'to England as well as bullion, the one being as convenient as the other for remittance, and the export of both being required to pay for imports. A reference to the illustration already given will best explain this. Under certain assumed conditions, and with no market more accessible to this country than in London, it appears that the exports to England for the four months ending with February would amount to about £5,300,000 in value, of which about £1,800,000 would be in gold; also, that from an excess of exportation during this period amounting to about £2,200,000, the local prices of gold, wool, and of all products for export to England, would fall. If, however, a local Mint should purchase the gold at a price advantageous to the producer, and restrain, it from immediate export to England, the exports of the period would be reduced to £3,500,000, and their excess over the imports of the same period to £400,000, with a corresponding benefit to the local prices of all products coming forward for export at the time. Under the same conditions, the imports for the eight months following are shown to exceed the exports by £2,200,000; but if the gold, or any portion of it, which was previously withheld, were then exported to England, the excess of imports would be reduced, and a corresponding check would be given to a rise in the local price of exports.