The Guardian (And Evening Star, with which is incorporated the West Coast Times.) WEDNESDAY, MARCH 19th, 1921. A FINANCIAL OUTLOOK.

Hokitika Guardian, 19 March 1924, Page 2

The Guardian (And Evening Star, with which is incorporated the West Coast Times.) WEDNESDAY, MARCH 19th, 1921. A FINANCIAL OUTLOOK.

Sinci: the war period the addresses delivered by tlie heads of the great banks at Home, at the annual meetings of sluueholdeis have received much more attention than was lorinerly the ease and rightly so, because the speakers, instead of eoniiniiig themselves to little more than a ae view of the London Aloney Market during the preceding twelve months, have dealt at considerable length with the exceedingly difficult economic and other problems created by tlie war. It may be .said, too, that the general public have looked to their great bankers for guidance in such matters, and not infrequently these annual addresses have consisted of it lucid explanation of subjects which have become much more prominent during the last decade. Such a. .speech was that of the Rt. Hon. Reginald AleKenmt at the meeting on January 25th of the Alidlaud Bank. Air McKenna, choso for his main subject tlio question of monetary policy in relation to the state of trade. The address is worthy of careful consideration, especially as a hurried perusal might create a wrong impression of the views of this eminent blinker. J’ossibly, too, tlie ordinary reader would find difficulty in following the reasons lie puts forward for the opinions expressed. Afonetary Policy lie defined as the policy which concerns itself with regulating the quantity of money, and ho showed that tlio amount of money in existence varies only with the action of the hanks inincreasing nr diminishing deposits. Every hank loan and every bank purchase of securities creates a deposit, and every repayment of a bank loan and every bank sale destroys one. An interesting part of liis,address dealt with the transfer of credits from one financial centre to another, of which we have heard so much of late. People often talk of money going abroad, or of foreign money coining into the country, but, as a fact, when gold is not in use, which is the case now, money is incapable of migration. But the title to money may change. An individual, says a Home financial paper, may sell his sterling to an American for dollars, but the American will then own the sterling in England and the Englishman dollars in the United States. The change of ownership does not remove the money, which necessarily remains and can only he expended where it was created. No exchange transaction, no purchase or sale of se-

curities, no import of foreign goods or export of our own, can take money out of tlie country or bring it here. AA’hilo the hanks have the power of creating money, they exorcise it only within tlie strict limits of sound hanking policy, which is mainly determined hv the proporton of their cash to their deposits. AD - Ale Kenna showed that there are only two ways of adding to or redwing the cash resources of the banks. The first arises from the action of the public. If less currency is required in circulation, and the surplus is paid inlo the hanks, tlie cash resources of the latter are increased ; while if more currency is required in circulation, and larger amounts arc withdrawifTrom the banks, their cash resources are reduced. Tire second and principal cause of movement is action by the Batik of England. The Bank, for instance, may invest £1,000,000 in AVnr Loan. The seller receives a draft for £1.000,000 and pays it into his own hank, which will consequently increase its -balance with the Bank of England by that amount. Actually a million of hank cash will have been created, which will become the basis of new bank loans. Conversely, the repayment of a Bank of England loan, or a sale of securities by that Bank, cancels so much hank cash and forces tlie banks, unless they abandon their established ratio of cash to deposits, to call in loans or to soil iuvestnienfs.