WELLINGTON NOTES.

Hokitika Guardian, 15 October 1924, Page 1

WELLINGTON NOTES.

EXCHANGE AND POLITICS,

(Special to “Guardian”.) WELLINGTON October 13

The difficulties of the exchange probio mare causing .Mr Massey considerbnle anxiety. He now fully realises flint it is not amenable to political reform, and that it cannot he improved by Act of J’arliament. In tiie earlier stages of the difficulty Mr Massey declared that what Egypt could do New Zealand could accomplish. He was referring then to the issue of finance hills to move the cotton crop of Egypt, tin's system of financing the crop being long in vogue, anti has been found very effective. Mr Darling’s suggestion that Empire Bills should lie issued was based on tiie Egyptian system, alul was vetoed by the experts \vho reported to the Imperial Conference. They could not see how the creation of another credit instrument would, solve the difficulty in the absence of a free exchange of gold. The exchange problem is an economic one anil is accentuated by political movements. If our imports plus the interest payable oil our foreign debt equalled our exports, exchange would be practically at par—-EIOO or British money for LIOO of Xew Zealand money. If our exports exceeded the other two, and gold was functioning the exchange rate could not possibly exceed the gold point, that is the cost of shipping gold from Loudon to Xew Zealand. But gold is not available and so if our exports exceed the imports and interest, the exchange cost is governed entirely hv the facilities possessed by the hanks or conunereiat firms to transfer credits. That being so there is no cheek on the cost of exchange, tin's being regulated by supply and demand. In addition to this the borrowings oil tiie part of the Governmein and local bodies in London had added materially* to the accumulations of credit ill London, and as there is :.n insistent and extraordinary demand for transfer oT the London credits to Xew Zealand and the facilities for exchange limited and restricted, tiie price is naturally very high. There is no doubt that exchange London on Xew Zealand is ox|ieiisive, that is In transfer credit from London to Xew Zealand, hut compared with Australia the rates in the Dominion are low. Belief can lie obtained, in the absence of free gold movements, by the Government. and local bodies ceasing to borrow in London until the credits there are reduced or exhausted. Then again it must lie remembered that our finance is intimately associated with the Connuomvenllli lor an examination ol our position at any given moment would show that wo are heavily in debt Lo Australia, There is nothing to ho gained by accusing Hie hanks of exploiting tiie producers and exporters, for it is well-known to those who know anything at all about the position that tiie hanks are not malting tiie huge profits out of exchange that some people- think they are making. The hanks are snlfeiiiig severely from the competition of commercial firms.

nnUBOWIXG IX XEW ZEALAND, to April last the Government borrowed I'V ID!), HHO in London, a few weeks later another million was raised there, and subsequently it was stated Hint tlie Government was about to issue Treasury Bills in London. Whether the Treasury Hills were actually floated was not slated and it. is pro italfir lln-\ iw-rr not, really issued. Then Mr Massey obtained .L'l, 12. qltliO from the Bank ol New Zealand at '>.l per cent. Now tiie Government is sidling at par over the counter debentures of Inscribed Slock maturing on July 1, lilJtl and hearing o', per cent interest. TTie.se debentures are not likely to he rushed because there is an oxtraordiuarv demand for money and investors can get better rates on interest on local bodies’ debentures, although it must he admitted that the local bodies are finding it extremely difficult to raise money. Furthermore the surplus funds or savings of the people are not equal to meeting this demand,and unless the demand moderates money must become dearer. -Mr .Massey professes to lie very anxious to keep down the price of money, but the Government and the local bodies by their competition for the limited available funds are forcing up the price of money. These debenture issues arc taking from the banks the money that should flow to them to lie used for financing the commerce and industries of the country. The hanking returns loi the September quarter just, published show that.the free deposits compared with a vear ago have contracted by .L-VO, 101); the fixed deposiLs, however, show an ’increase of C1,700,‘-’SO, which affords some relief. The aggregates oi the free and fixed deposits for the past quarter totalled C In, 12.2,0—>, while tiie advances and discounts amounted to L 43,923.<)51. which means that the hanks have lent to within Cl ,198,H1 lof their resources, and unless more credits are lodged with them thev must adopt one of two • nurses. They must either curtail Urn accommodation to the public or make tl.e'i* deposit rates more attractive. It' D.e latter course is adopted the lending or overdraft, must also he. raised, the hanks will require a good deal of money during the next six months to nuance wool, dairy produce, • c ’ ,p * If there is a substantial increase in the imports the situation will Ire f-heu-tl to some extent, hut there is no evidence of such expansion. The situation at the moment is very unsatisfactory and give cause for anxiety.