LONDON EXCHANGE

Hokitika Guardian, 17 October 1924, Page 4

LONDON EXCHANGE

STATEMENT O.S HEIIALF OLHANKS.

WELLINGTON, October 10.

With reference to llto statement made h.v The Thine Minister in the Mouse hist evening regarding London exchange rates, the chairman of the Asociatod Hanks in Welington has been asked, in view of public interest on the subject, for some comments upon the present posh inn, and has given to following statement: — Tim hanks' buying rate for demand drafts on London is now los per cent discount. That is, the hank will pay c;;7 10s for the right to receive .'JIOO ill London about six wrel.-s’ hence. Ol this sum Ins may he regarded as intocer.t, for those six weeks, and the transaction is equivalent to paying C9S IDs here for a simultaneous receipt of L'lOtl in London. On the oilier hand the banks sell to the public I*IOC of London money by telegraph in exchange for L'l’lO Ills ‘here. 11 is the price 'if telegraphic money that forms the basis for all quotations of rtftc. Other rates. “demand,” “thirty days,” etc., represent telegraphic

rates plus interest. That L'l or so of margin between buying and selling rates is reduced liv the fact, commonly known to business people that buyers of London money in large amounts cun obtain it at a considerable ui'iceNsioit upon th" published rate ol Cb 9 10s, except in most unusual circumstances. The banks arc always prepared to either to buy or to sell exchange to llieii customers and nL whatever currency customers may require. They do not merely buy when they happen to have surplus funds, or sell when they require money. This necessitates ‘heir holding large stilus nf money at both ends, New Zealand and London avail-

able whenever required, and consequently not employed in the most remunerative manner. The tumis thus held in London were usually, during the past year, earning about 2} per cent as compared with the New Zealand minimum lending rate ol i> per cent. When, owing to heavy export.

New Zealand borrowings in London, and other causes, these ticcu'.nulaiions in London become excessive anil il becomes necessary to olloet tran.-leis to New Zealand, the cost is olteu greater than the margin of profit between the hanks’ buying and selling rates. It is so at present. If this were not borne, hut the funds were left in London, there would be a shortage ol money here, anil the hanks’ borrowing tautomers would, be seriously inconvenienced. These factors materially re. diice the apparent margin of prolU. It is contended that the producer or

exporter is suffering through the London exchange (which he sells) being at a discount, mid complaint is made that he now receives 'lds per cent less for his hills than in December, 1 i>—o, and throughout 11)21, w lien they were being bought at par. lint this is not a profit to the hank's. It is a fluctuation in price, and the importer who bit vs London money is to-day paying

tills to 70s less than during the period named. This should lie rellected in the cost of imported commodities, and is u n advantage to every euii.siuuer in the country. The producer, as user or consumer of such goods, is doubtless receiving in his store bill and merchants accounts the return of a considerable pari, of the exchange which he pays. It is not the desire ol the hanks that London money should he at a discount here. They prefer to see ii aliotil par. I>ul they cannot control u hat aic natural laws. Wlii.it considering the exchange position our relation In Au.stialia must lint he lost sight of. Large sums have

constantly to he paid hy New Zealand to Australia, to cover an adverse balance of trade, and there are many very large payments outside the trade re turns whit It have to he. made in An 1,,n y. m aland mount, lur liar. In.HIV > Miriov'l'i la I lnor- h.uc •

I ;il>li''hliH'lii i m Uni Ii :iml n|nT ;ili* for in tin* insirki*t \vl»i<li

suits them best. I.ondon money is at present at a greater tliscmnl in Australia than in New Zealand. The producer there obtains only CJHi I'Jslid lor his demand dialt lor t-'IIIO, and a parapraph IT a recent "Sydney .Morning Herald”, iclls ot .sales ol telepraphio exclmupe al t-'tlH IKs. Il at the present lime New Zealand hanks increase the price of I.ondon hills, Ihe producer would continue to sell his drafts to them. bill the importer would do his best to edeet his purchases of exchange in Australia. That could not not go on indefinitely. II unable to sell the hanks would have to cease to Imy, and the producers would liml that thov had produce oil their hands which they were unable to convert into money. The hanks sympathetically recupni.se that the present position dues entail a low upon the producers, thoiiph there are alleviations hut they cannot control the position in Australia, much less Kllipirc conditions, and sellers of I.ondon exchanpo should hear in mind that tin: I.ondon draft lor OHIO which produces L'!>7 lAs here, is hoiiphl lor 17s C.d in Austraia, and for LT*7 •_'s (111 ill South Al'riae, which is only half out' distance front I.ondon.