WORLD’S FINANCIAL CAPITAL.

Hawera Star, Volume XLVIII, 15 September 1924, Page 7

WORLD’S FINANCIAL CAPITAL.

LONDON OR NEW YORK?

ENGLAND NOT SUPPLANTED.

AMERICA’S GLUT OF GOLD

The United States, is the richest country in the world. It has accumulated in the reserves of its banks more than half the world’s stuck of gold, and more gold in payment for American produce and manufactured goods is pouring in at the rate of over 1,(XX),000 dollars a day. Last year the influx of gold into the United States reached 400,000,000 dollars, and, according, to Treasury officials of that country, this figure will again be reached in 1924.

. The primary factor in making America so rich has been the war. The Allies paid America enormous sums for war stores and food supplies during the war, and after the war ended the impoverished countries of Europe continued to buy vast supplies of foodstuffs from America. As Europe had little to export that America would take in exchange, Europe had to pay for American produce and American goods in gold. This process has been going on for six years, with the result that Europe is being denuded of gold and America is adding to her vast hoard of the precious metal. This accumulation of wealth in America has made money cheap for borrowers, with the result that some countries which were accustomed to borrow in London ' for development schemes have been testing the New York money market. It was recently stated in the New York newspaper’s on the authority of “high Treasury officials” that New York is gradually becoming the financial centre . of ‘ . the world because of the low interest rates in the United States, backed by the largest stock of gold ever assembled in any. country. But London financiers who have been accustomed to handle the flotation of foreign loans for many years scorn the idea of New York supplanting London as the financial centre of the world. And Wall Street financiers are not prepared to endorse the view of American Treasury officials that London will soon play a subordinate part to New York in _ financing foreign loans. Financiers in New York and London are agreed that, owing to America’s great wealth, she will probably take a larger share in financing foreign loans than she has done in -the past; but they recognise that underpresent conditions the' American investor wjll prefer to invest his money in American securities instead of in foreign countries.

“For generations England has practised and fostered international finance and banking, and attained acknowledged mastery in that field,” states Mr Otto H. Kahn, a wealthy American banker, who holds that New. York will supplement, but not supplant, London as a market for foreign securities. “England’s discount, acceptance and credit markets, the methods, system and routine of the facilities which ’she offers to foreign commerce and the foreign borrower, have developed to a breadth and a perfection of functioning which have no parallel in any other country. Her merchants are admirably • trained in foreign trade, intimately acquainted .with the ways and habits of foreign countries, and have established an enviable reputation throughout the world. Her investors are accustomed to place part of their funds in foreign countries, and are nominally under a potent inducement to do so. The geographical position of a' country in relation to the world’s established trade routes, and the intrinsic character and natural tendencies of its commerce, are strong elements in determining the degree of its potentialities as an international financial centre. These natural elements are distinctly more propitious in the case of England than ,in that of the United States.”

Great Britain’s foreign trade, which -has been built up through, the course of years, is much more extensive and more ably organised than the foreign trade of , the United States. Trade and finance are interwoven, and to a considerable extent the foreign loans which London finances are spent in the

purchase of British goods. A very large number of British companies . are engaged jn trade and development enterprises in foreign countries. But the United States is mainly a self-contained country. It is still in the process of development, and offers unlimited scope for the employment of capital. The vast protected homo market of the United States, with its population of 110,000,000. overshadows in importance the accessible .foreign markets. Therefore, there is little disposition in America to invest abroad. Politically, Americans take very Tittle interest in foreign countries. The national policy for many years haft been one of detachment, and it will he

many years before this mental attitude is changed. Until it is changed America will not provide a receptive market for the flotation of foreign securities.

Moreover, the Avealthv American finds that it is more profitable to invest his money in his own country than in foi-eign countries, even though the rate of interest offered by foreign loans is much higher than the return from American securities. Under the constitution of the United States every component State, every county, and every municipality has the right to issue bonds, which are Avholly free from income tax and super taxes. As the

super tax in America reaches a maxinium of 40 per cent on large incomes, it is obvious that tax-free bonds are a most attractiA’e form of investment, for wealthy men. A tax-free bond, yielding 41 per cent, brings approximately the same return to an investor in the highest super tax class as an 8 per cent bond which is not exempt from taxation! And, from the point of view of absolute security,. no. foreign bond ean surpass, and few can equal, that which is offered by American States or municipal bonds. There are over £3,000,000,000 of such securities outstanding in the United States, and new issues are being placed on the market almost eA'ery week. While such conditions continue, it is not likely, that the American investor will look favourably

on foreign loans,’ and until the American investor finds that foreign loans are more profitable to him than local bonds, New York will not. supplant London as the financial centre of the world.