THE EXCHANGE CRISIS.

Dominion, Volume 8, Issue 2570, 18 September 1915, Page 3

THE EXCHANGE CRISIS.

Sir,—As to why we (Britain and her colonies) can only get approximately 19s. 4d. worth of goods in U.S.A. for a British sovereign or its , equivalent has boon puzzling mo a good deal, also many others, lour article "The Exchange Crisis" puts the position clearly up to a certain point, but I could not understand why a sovereign now is only -worth 4 dollars 64 cents., as against 4.85 beforo the war. Does your article mean that the rate of exchange is fixed arbitrarily. by the New York bankers, simply because the balance of exports is against Britain? ' In your supposed case where X, a Chicago merchant, sells, to a British house £20,000 . worth of grain and drrtws on the British merchant by means of a bill of exchange, and the money is paid in full in Britain, that payment really only represents £19,340 in round figures. Supposing the gold. • 'was actually shipped to New ; York, would the £20,000 of British sovereigns bo only worth approximately £19,-340 in that city? If this is so, who-gets the odd £660? .

The only way that I can see daylight through the affair is that because of the present state, of affairs the New York • bankers are taking advantage of Britain's need, gold only boing a medium of exchange, and making us pay through the nose for our goods. The manufacturer of the goods sold to Britain does not got the exchange, but the banker or broker, at least that is how it appeals to me. With added freights,; extra.- co6t of goods, and this on top of it all, we are in for a fairly expensive time. ■ Having been a constant reader of your excellent paper sinco its inception, ■ I have learnt many things from its columns. Without The Dominion - one would not know where to turn for information on many items.—l am, otc.,' • , L.-J.S. Wanganui, September 13, 1915. [Our correspondent is wrong in. his assumption ;that the sovereign is only worth 4 dollars 64 cents; the minted sovereign has its full value in America as elsewhere,, it is the credit that the sovereign represents that is depressed.

It is a credit crisis that is being experienced. A bill of exchange is a, credit instrument, and is much more convenient for the' settlement of international trade than minted money. Transferring gold from one country to another is an expensive matter, but in any case it would be utterly impossible to find, say, £200,000,000 in gold to pay for the munitions required by the Allies. In normal times there i>> always a largo volume of hills drawn ■ in America as against Great Britain, and vice versa, but just now, owing -to the war and the transport difficulties, tlio necessity of the Allies turning their industries from peaco to war purposes, and the stern necessity of purchasing munitions heavily in th'o United States tlio volume of bills drawn by America on Great Britain is much in excess of normal times, while there is practically a dearth of bills drawn in Great Britain against tho United States. Tile Allies have sent many millions sterling in gold, but American bankers, wihile obliged to accept tho metal, are not anxious for supplies to accumulate, because any quantity abovo 'what is necessary for r,afo ba'u|;ing, is so much dead stock. To alxiut aujeaw;

Hbrium in the exchange, the. International Commission now visiting America on behalf of the Allies is arranging for « 200 ' 000 ' 000 - Whbn this is nxeU tno Allies, which in this case practically means Great Britain, will have the right to draw upon the United btates for the amount of the loan, and there will thus be a eet off to the volume of hills from America, and the ; excnanges will right themselves. The .subject of the exchanges is a very complicated one, and it is exceedingly difhcult to give an explanation of- it in ,a lew words, but, roughly, it may be „said_that international trade is settled chiefly by merchandise (exports 'and imports), services, such as insurance, banking, shipping (freight, shipbuilding and repairs) and securities. For instance, New Zealand may export goods to value of £24,000,000 and import goods to the valuo of. £22,000.000 • there is «n apparent balance of £2,000,000 in our favour, if we had no other obligations that balance we could have m gold, or simply let it remain abroad a " wtorest. But New Zealand has to remit over £3,000,000 for interest on pubhc indebtedness, then we liavo to rrnu the money for those of our people travelling abroad, and a variety of other things, so that instead of having a- credit balance in London wq Generally liavo a debit. Wo cover tliis bv 1 a,■ loan, or, .tb put it another way, wo export securities and ; so' obtain the credit- .All these transactions are settled by bills of exchange or credit instruments. .

It does not follow from > the situntion that bankers are grasping, greedy people, and squeeze their customors. .Hankersare subject to as keen competition as those in any other business, and in the exchange market ,it is the bill brokers who do the business. There is too much competition for any combine to have a chance of maniuuiating 'the market. If a clear insight into, the operations of the money market is desired read 'The Meaning of Money." by Hartley Withers.]

A HIGHLAND REGIMENT FOR NEW ZEALAND.

Sir,—The proposal to Taise a Highland regiment in this Dominion las not originated with Mr D. M'Laren, for about two months ago Mr. John C. Mac Donald offered the Hon. Minister of Defence to make a lecturing tour of New Zealand with a couple of pipers for recruiting to raise a regiment of Gaelic-speaking Ifrrhlandere and sons of Highlanders who could speak the ancient language. His proposal was favourably received by the Hon. Minister, who . said he would be proud to be a unit of the regiment and felt'sure t-ho.regiment could be raisod. The Minister in his reply said that recruiting then was quite satisfactory, and did not think the time was mature for the purpose. The proposal is stilt beforohim, so I am of opinion when the Minister thinks tho. time has come to raise a Highland regiment there will b 0 no difficulty in doing so, and the matter may well be left'with, the Hon. Mr. Allen.—l am, etc., ' ' K. D. M'L.