WELLINGTON NEWS

Hokitika Guardian, 5 January 1927, Page 4

WELLINGTON NEWS

MONEY AND CREDIT.

(Special to “ Guardian.”)

WELLINGTON. January 3

During the past year it cynnot he said that money was either plentiful or cheap. Tlie borrowing countries experienced eery little difficulty in obtaining credit provided the price was paid. Throughout 192(i money was not too plentiful in London while it had been in abundant supply in New York,

-till London carried out all its obligations with very little if any discomfort. The movements in world’s money rates have revolved around New York, which place, for the present tit any rate, is the world’s monetary centre. It is interesting to review the movements in bank rates during the past two years. Marly in 1921 the rate of the Federal Reserve Hank of New York was I f per rent and the Hank of England rate 4 per cent. In the second quarter of 1021. Vow York came down to 1 per cent and after a short stay there to 31per cent. Li the third quarter of 1024 New York came down to .1 per cent., while the London rate stood throughout 1024 at -I per cent. In the first quarter of 1925 both rates moved up, London made one jump from -I to 5 per cent and continued at the latter figure until the third quarter when it was reduced to hi per cent., and a little later to 4 per cent. In the last quarter of 1925 however it went up in one jump from 4 to 5 per cent, where it has stood ever since. During 1925 New York rate advanced 1 per cent to Iff per cent, and remained at that throughout the year. AVhile the London rate was unchanged at 5 tier cent throughout 192(1 the New York- rate showed several variations. The year 102(1 ripened with the New York rate at Iff per cent., hut within the first few days it was raised to 4 per cent., mainly with the object of checking the extreme speculation prevalent throughout the United States, but particularly on the Wall Street Exchange. The hardening of the money market bad the desired effect, and in -lie second quarter of 192 G the Federal Reserve Bank reduced the rate to Iff per cent at which it lias since stood. Thus 1926 closed with the Bank of England rate at 5 per cent and the Federal Reserve Bank at Iff- per cent. It will not be amiss to explain here that the Bank of England sticks closely to well-established custom. When the discount is raised it is always put up 1 per cent, and reductions in the rate are always made in i per cent.

An upward movement is intended to check flic demand for credit, and that being so it is thought best to make the check immediately effective, and so all advance of 1 per cent is made. ’Hie rate is always reduced by .1- per cent at a tune, and this gives the officials an opportunity of seeing the effect of the small reduction before a further drop is made. At o per cent the London market was comparatively dear hut there is no doubt that the industrial upheaval experienced in the United Kingdom was largely responsible for this. The prolonged \'oal strike is estimated to have cost the country the huge sum of C 100.000.000. The year 1920 was an extremely unfortunate one for the Mother Country and it is doubtful whether there will he much of a surplus for investment overseas. and yet the Dominions must borrow further large sums apart from the provision for maturing loans. Hie

Commonwealth lias a loan of C17,/50.000

falling due on July 1 in London, and N.S.'.Y. has £11.000.000 falling in, and conversion loans must be issued to provide for these. The Western Australian Government has a loan of £2.500,000 maturing in the course of a few days, hut this is to he repaid without further borrowing. It seems that a sinking" fund was established in connection with this loan, and for the first time in the history of Australasia the sinking fund set up in connection with a loan has been sufficient to repay it at maturity. There lias been a distinct tendency in London to discourage fresh borrowing on the part of tho overseas Dominions. It is recognised that the substantial borrowing of relent years bv the Dominions has been to promote a larger import trade than in pre-war years, hut the opinion is expressed that almost a laissez taire system lias come into existence in connection with Dominion borrowing generally. That is because of tho privileges lonferreil upon the dependencies of allowing their bonds anil stock to become trustee .securities. The effect (has been that loans have been obtained by the Dominions at fully 1 per cent loss interest than if they bail to face free market conditions. issues have been surrendered it is said with an atmosphere " of reputed soundness which Inis no necessary relation to their intrinsic quality.” Politically it is accepted that it i.s hardly practicable, it not impossible to amend the Colonial Stocks Act. The way nut of tho dilemma, it is suggested, is not so much to bother about the inclusion of particulars respecting the state of the finances of the borrowing country, but to establish sonic body or council, representative of financial interests both in London and the Dominions. Such an organisation, it is urged, could periodically survey the field in the light of Dominion requirements, anil of the power of the British investor to supply them. It is obvious that some such reform must ultimately come about.