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UNION BANK OF SWITZERLAND
Union de Banques Suisses - Unione di Banche Svizzere - Schweizerische Bankgesellschaft

Aarau Basle Berne Geneva La Chaux-de-Fonds Lausanne St.Gall Winterthur Zurich Baden, Chiasso, Flawil, Fleurier, Frauenfeld, Lichtensteig, Liestal, Locarno, Lucerne, Lugano, Montreux, Rapperswil Rorschach, Ruti (Zurich), Vevey, Wil, Wohlen Ascona, Basle-Markthalle, Couvet, Geneva-Morlard, Romerhof-Zurich 7

       Rudolf J. Ernst, Manager

                          Mr. Germain Seligman
                          5 East 57th Street
                          New York 22, N.Y.
                          _________________                         

Basle, November 11, 1949

Dear Germain,
            I thank you very much for your letter of November 4. I have studied with interest the problems which you submit to me for consideration.
            I believe that you will not find satisfactory information neither in Newspapers, Magazines or Bank Bulletins on subjects as delicate as the one of devaluation. Furthermore there is no European nor American, nor a Swiss angle to this question. The gold standard in itself is a basic laws and the foundation of our monetary system all through the world. It is to be compared to the metric standard which in form of a silver staff is deposited in Paris and which serves as an undoubted measure. The gold standard is on the other hand the law with which we measure the value of currencies in terms of gold, whereby they become comparable and convertible.
         If the situation is absolutely clear from an economic angle, it is not so from the political one. Politic is interfering in these fine works of smooth operating cog-wheels and has through inflating methods and a crude system of monetary quantity theories brought new elements into this world.
         It has completely ruined the good old system of the gold standard although not extinguished, as we always maintain the positive elements of measuring currencies on gold. However, the other intricate system of pro-duction of quantities of money is so closely interwoven with Government and private finance that it will hold very difficult to return quickly to a clean honest system of the past.
         Coming to the practical side neither the Swiss Franc nor the American Dollar can be devalued legally without approval of the highest Authorities: in the U.S.A. the Congress and in Switzerland the People's Referendum. Therefore a strong guaranty against a change in the price of gold * or in other words, a devaluation cannot be carried through easily. On the other hand, the U.S.A. Government and the Federal Reserve Authorities seem again to be pledged for a policy of monetary inflation and this will, sooner or later, bring your Country in severe economic difficulties.
             In Switzerland, the monetary questions are handled more conservatively. But I do not believe that our Economy would be flexible enough in accepting the necessary measures of an honest adaption should other countries solve their economic afterwar problems by making use of the discussed system of devaluation.

* exists