MONEY EXCHANGE

Hawke's Bay Tribune, Volume XVII, 5 December 1927, Page 4

MONEY EXCHANGE

rpHE SUBJECT of international exchange of money and credit is one that is beyond the uninstructed intelligence not only of the man in the street, but of the average business man, even of many comparatively big business men. To-day the weekly review of trade and finance cabled from London informs us that, as between New York and London, the pound sterling has for the time being an exchange value of 4.862 dollars—the highest since 191-I—the par of exchange on a gold basis being 4.Bt>b. 'l'fiis is the result ot no suuUen jump, Out ot a hardening process that has been in operation lor some little time now. tor those who have some inkling of what tms really means an explanation ol this rise in sterling value provided by an Australian financial writer may be of interest.

With full and free offerings ol bills drawn on London to pay lor tm seasonal exports from the United States, he says, the rate should have been easy in September and October. That the rate moved against precedent set the English newspapers seeking lor the cause and tile reasons then given were, first, the movement of funds from New York to London on account ot loans made by the United States to Australia and to European countries, and, second, tile reduction of the American reserve banks’ rates of rediscount bringing those rates below the Bank of England rate of discount. That meant that it was more profitable to invest money at call and for short terms in London than in New York, and so the means of transferring money from New York to London was sought, not necessarily New York money, but money which had been invested in New York. The export of raw materials from America is still proceeding, but sterling is yet in strong request, as evidenced by the quotations reported. Seven or eight weeks ago there was a premium in London on forward dollars, which meant that a weakening ot sterling was forecasted. Those who acted on that assumption have been deceived. Yet, while we may lie congratulating ourselves on the British pound sterling being worth more than usual in terms of the American dollar, there is a weakness in the situation. London, us the saying is. has borrowed short and has lent long. The money taken for investment to London at

call and at short call is tjplly a loan to Great Britain, and may be called at any time. The loans which Great Britain has made to Australia and to other countries have been for terms of years. When withdrawals are made by foreigners from the London money market, there will probably be a period of stringency. It may be further explained for the uninitiated that, as is mentioned in the cable the rate of exchange, though so appreciably above par in gold, has not yet risen against NewYork to a point which would make it profitable to ship gold in order to restore the balance. This is simply because to the sitting value of the gold in the New' York bankers’ vaults has to be added the cost of moving it to London, freight, insurance, and the like. It is. however, expected that this point, estimated at 4.887, will be reached ere long, when, if not perhaps before. America will probably be only ton wind to get rid of some of her surplus bullion.