CREDIT SHORTAGE

Evening Post, Volume CIX, Issue 45, 22 February 1930, Page 12

CREDIT SHORTAGE

.ECONOMIC

SURVEYED BY A BANK

!:; __ "Evening Post," 22nd February. ■ New Zealand's financial connections with ji Australia are far too intimate for indif- '. ference to be shown in the Dominion to / |; economic events in the Commonwealth. i;ln these circumstances the considered reII view of the situation made by the National iißank of Australasia especially on the cxi; change position, has considerable interest ■for New Zealand exporters and import- ■ evs. The Bank refers to the fact that ; for the past six or seven years Australian 'j financial leaders, including the chairmen ;lof some of the trading banks, have raised Learnings of the . probable results of 'heavy Government borrowings, largely, 'overseas, with concomitant growth in in- ' terest charges, and of extravagant spend- • ings, both by Governments and individuals. Now there is credit stringency in * Australia, shortage of Australian funds I; overseas, falling off in the, value of the surplus of primary products, and i marked difficulty in obtaining overseas Sloans to meet obligations abroad. These •conditions have arisen through the opera'.tion of forces which. have been largely '■outside the control of the banks. Dur:ing the past few years of apparent pros■perity, when business was booming and [Governments were able to obtain what--3 ever loan funds they required, the banks fhave been at times accused of restricting '•credit and failing to assist trade and pro- ' duction to make a further forward mpvetment in keeping with the general prosperity of the community. J POLICY OF RESTRICTION. >' This policy of restriction, the National ißank maintains, has been amply justified (by more recent events, and it has enabled them during the past twelve months to 'largely increase the assistance afforded by i.'them to private - enterprise. Advances ; have been increased to an extent which is > disproportionate to the growth in the dei posit figures, showing that the banks have ? during a .difficult period afforded useful Jand substantial assistance to industry in The reserves of gold which the accumulated in the past years have 'attracted attention from time to time, and ■'the maintenance of what was called by i'some people an, "idle asset" has been !: severely; criticised. More.' recently, when !;the overseas exchange position became ad- ; verse and borrowing either in England or on Australian account difficult, i: these gold reserves of the banks came into : marked prominence. The banks have al- ' -ways considered them a useful provision 'for maintaining the credit of the country, "and for providing money overseas under :■ circumstances such as the present. Ihe value of the banks' action in preserving their gold reserves is beyond question, and ■'it was for the purpose of making fullest .use of the gold that the Govern*ment introduced the amendments to the ■Commonwealth Bank Act. It could not i'be said that the trading banks were fay- ; Durable to the new legislation when it .v-as introduced, but following its enact■uient they willingly assisted the authori-ties-toward making the gold effective as 'fully as possible, for the purposes of rectifying, to some extent, the existing exj change position and strengthening the reserves of the note issue. ;; GOLD CONTROL. '< The effective control, which is now provided through: the operation of the Act, 'and by arrangements between the Com--5 nionwealth Bank and the trading banks, idoes not divest banks Of the whole of •■their gold reserves, and such part as is be"ing transferred to the Commonwealth ;Bank is definitely earmarked for the pur'poseof strengthening the note issue and [improving-the exchange position. There !'is no intention, as far as is known, to use any of the gold transferred to bolster up inflation of paper currency. . ■' The steps taken, however, are msuiiicient to rectify the exchange position, and the banks have further increased the premium charged by, them for London funds, which'has :thd effect of increasing the ' value of bills : drawn against exports of < Australian goods and diminishing the value ■:of bills drawn against .imports into Ausitralia. Unfortunately, this action has, of some effect towards diseouragi.ing international trade. The exchange position will.be,'difficult for some time, buti •there are forces operating toward bringing ,!the Australian and British currencies to' parity. PURCHASING POWER. ! The banks have increased their quoted ■rates. Customs duties have been raised, c and there is diminished purchasing power >in- Australia, which may be further dimfinished. ' Unduly large stocks of imported goods indicate marked reductions in imports. Gold shipments will afford sure 'relief, and..further relief .will be obtained 'iif any new Government loans are floated ■ by Australian Governments in London for i-necessary'developmental1 works, but overseas lenders will be very chary about adding to their-investments in Australia until ■ithe coal mines' in Northern New _ South Wales are working, on a sound basis.