THE LONDON BULLION MARKET-

     

         It was till 1938, 39 the London bullion market was supreme. Before then it has virtually ceased to exist. It was really a special section of the money market and its supremacy was primarily due to the fact that the U. K was the first country to adopt gold as its currency standard and to the fact that a large proportion of the world’s gold was mined in countries owning allegiance to the British crown. In addition, this country’s early financial and industrial leadership combined with its close link with India and other silver using countries made London world arbiter of the price of silver bullion.

Dealings in the bullion market were in the hands of seven companies via Kocatta and Gold & Diamonds mid, sharps and Firkins , Pixley and Abel, S. Montagu & Co, H.M. Rothschild & Sons, Benson, Tatthey & Co, Ltd, Some being bullion refiners. All these worked in close connection with Bank of England. The price was fixed by the brokers. Each broker disclosed the total of his buying the total of his selling orders. These totals were compared with the available supply of gold in the market and a price for the day was agreed on the facts. The London price was quoted in shillings and pence per fine troy oz, for bars of approximately 400 oozes fine. The quotation was for fine gold and the metal as sold was in the pure state after being refined.

         Till now, there is still an embargo upon the purchase and sale of gold and the bulk of the country’s bullion is in the hands of the exchange Equalization Account. Gold is still imported in particular from South Africa and from time to time small amounts are made available by the Bank of England for industrial purposes. Such releases are made through bullion firms at fixed prices. Whereas prior to 1938, 39. The Times magazine quoted the current bullion prices then. it is now normally quotes Bombay prices, there still being  a free market  in India, This quotation below is an extract of the Times magazine of  1953 –“There is a small demand for London  essential , silver  and this was satisfied  from official sources at the unchanged  price of 74d per fine oz . For both cash and forward delivery. In Bombay silver rose about a rupee to Rs. 151 2a for spot and Rs.151 10a for forward and gold was 7a or 8a at Rs.80, for prompt delivery and Rs.80 4a for forward”.

               THE INTERNATIONAL MONETARY FUND (I.M.F)-

     Very loud and clear, that the problems associated with exchange rates are extremely complex. When the Great Britain left the gold standard in 1930-31, a period of uncertainty followed during which numerous proposals were made for the regulation of exchange rates. In the post –war 1945 period a determined attempt has been and is being made to regulate international monetary matters by means of the international monetary fund. Brief reference was already made to the Breton Woods conference then 1944 as a result of which the fund and the international bank were established. The terms of membership of the fund can for the most part be regarded as an agreed expression of the post war policy-certainly so far as all members of the fund are concerned. The main provisions of these terms are stated as follows-

   
       Members agree not to change the value of their currencies by not more than 10% until they have consulted the fund. Any such devaluation or appreciation mat is made only to correct a fundamental disequilibrium. This latter tem for most purposes means a permanently favorably or unfavorably balance of payments. Changes in the value of currencies of less than 10% may be made without consulting the fund. The devolution of sterling from $4.03 to $2.80 was under these terms in 1949.

Each member country has to declare the par value of its currency in terms of gold or the U. S dollar.

Members undertake to make their currencies freely convertible as soon as possible after joining but they allowed claiming a five year transitional period from the end of the Second World War. The American loan agreement whereby the U.S.A loaned the Great Britain £100,000,000 at 2% in 1946 imposed an earlier date upon the U. K for making sterling convertible. It was as a result of this agreement that sterling was in fact made freely convertible in the month of July, in the year 1947. This move was followed by such rapid draining of the country’s reserves that the experiment had to be terminated. It was subsequently decided that sterling was in any case over valued at $4.03 but even though it still after some time then in 1954 stood at $2.08, convertibly would still appear to some way off.

    A permanent international fund has been established which consist partly of gold and partly members currencies. The sum to be contributed by each members to this pool was fixed by the fund, for instance, Denmark=$1,300 million; U.S.A=$2,750 million, France= $450 million. 25% of the balance in the members own currency. The amount of gold is fixed at not more than 10 % of the members of gold reserves.

    Each member is allowed in any one year to purchase foreign currencies from up the fund up to a total of 25% of its quota. The fund will not; however at any the time holds any particular currency in excess of twice the quota for the country issuing that currency. Hence any country  can buy foreign exchange up to 25% of its quota  during  four successive years –unless  it happens that other countries have purchased some of its currency from the fund there by  reducing the fund’s  holding of it    to less than  200%  of the quota. Once the funds  holding of a currency exceeds  125% the quota  a progressive scale of charges comes into effect for any further purchases. These are usually applied into effect to deter members from using the fund’s resources if they possibly avoid it.

Should the fund’s holding of any currency fall below 75% of the quota that currency is declared scare. When this actually happens it may not be purchased freely but by other members but rationed.       To remedy this state of affairs the fund is empowered to buy the scare currency with gold or to request the country concerned to lend to the fund.