THE EXCHANGE TANGLE

Hokitika Guardian, 30 October 1924, Page 1

THE EXCHANGE TANGLE

What is frequently overlooked is that tlie balance held by Australian banks in London are not debts due to Australia, says the “Sydney Morning Herald.” discussing tho exchange situation. They are properly owned in London by Australia, much the same as shares in a London company may he owned by Australians in Australia. The produce which those balances represent has been paid for long ago with Australian money. Buyers came to Australia with English money, and the banks gave, them Australian in exchange for tlie English money, so as to enable the purchases to he made. Tho hanks hoped to be able to use that English money by selling it for Australian money to Australians who wished to settle for purchases made by them in Great'Brtiain and in foreign countries, nnd to settle other foreign indebtedness. A great deal of the British money changed for Australian money last season has been nbsorlrcd in this way, hut there are said to he heavy balances remaining in London. Buyers for this season’s produce on the market and in sight have arrived with British money, which they wish to change for Australian money. 3 lie hanks say. “We have a great deal of British money already. If we lake all you want us" lo take in exchange for Australian money, we shall he overloaded with British money, and shall lint have sufficient Australian money for other Australian requirements. We must encourage people to buy British money from us with Australian money by reducing tho rates at which wo sell British money.” So tho hanks sell money which they have in London at a reduced rale, and the import of goods which are paid for with British money is encouraged. Now comes along a British buyer with a large sum of British money, asking for an equivalent amount of Australian money. Tho

hanks do not think they can give him all of what he wants. With flic remainder of In's British money this man goes to an importer, approaches him. perhaps ,through a broker, and offers him that British money for perhaps -I per cent, less Australian money. The Asutralian importer hands over, by moans of a cheque on his bank. Hie money to the British buyer, who, in his place,' gives an order on his hank in London to tho Australian importer. Word gets round that British money can lie purchased more cheaply outsi(Je the hanks than from the hanks, and so the hanks are forced to reduce again their rate for selling British money. As a result, they have to buy British money at a lower price, in other words, increase their discount on the Dills on London, which they negotiate for the buyers of our produce.