WELLINGTON NEWS

Hokitika Guardian, 18 October 1927, Page 4

WELLINGTON NEWS

STERLING EXCHANGE. (Special to “ Guardian ”.) . WELLINGTON, Oct. 15. Ever since the beginning of the month sterling exchange on the New York market has been tending upwards, and on October 10, sterling exchange was quoted at 4.87 3-1(5 dollars. The Americans have thus to give more American money to purchase a given quantity of llritish money. This movement in the sterling exchange is rather remarkable, because at this time of the year Europe becomes very heavily indebted to the United States on account of purchases o! wheat, cotton, petrol, etc., smcl it is usunl to see a strong demand for dollars with which to pay for these goods. Hut apparently the indebtedness at the moment is on the part of the United States, and there is in consequence a keen demand for discharge of this indebtedness. The new position arises 1 rom the fact that the United States lias been lending very freely to Europe and some portion probably a large portion ot the loans funds is to be withdrawn from New York by the borrowers, and London is being made use of tor the purpose. A Now York bank having to remil money to London, buys hills on London, that is bills that are payable in Sterling. The New York banker gives the seller of the bill dollar currenev. and receives lor the bill in London sterling currency. On August t he bad only to pay 1.85; dollars in New York for the right to obtain a | pound sterling in London. On Octoberi 10th lie had to pay 4.872 dollars, so, that sterling exchange was at a pre-1 mium, and more dollar currency had to he tendered for a given quantity of. sterling currency. There were years prior to 1925 when the pound sterling could not he exchanged for more than ;j.7() dollars, so we see that a very i great change has come over the situation. If the claims of the United States on Britain, and the claims of Britain on the United States were equal exchange would he at par. This supposes the existence of an international currency, hut as in different countries different currencies are employed the exchange does not in practice take a simple form. There is no means of ascertaining when demand

and supply do balance, consequently it is impossible ever to know what the true par of exchange may be. As a .substitute cambists have adopted what is known as the mint par of exchange. This is obtained by establishing a comparison between tlie currencies of tho countries concerned, based on the weight and fineness of tho gold contained in their respective standard

coins. The pound sterling is 11-12ths fine gold and the United States standard dollar is fi-Ulths tine. The mint par of exchange is 4.8(5 2-3 dollars to the €. or a dollar equals 49 and o-lbtlis of a penny. Since the American hankers have to remit to London they are buyers of sterling exchange, that is buyers of hills payable in London in sterling. Owing to the scarcity of sellers of sterling the price has advanced and 1.87 3-Ksths dollars was being paid for the pound sterling. This is well above the mint of exchange, and there is still room for further advance, but the advance cannot well go beyond 4.90 dollars. II the exchange rate reaches this point then American hankers would prefer to ship gold to London. The exchange rate of 4.90 dollars is the “ gold point,” that is it would be convenient to send gold across the Atlantic, and the rate is arrived at by adding the exist of shipping the gold. The costs would include boxes, hags, packing, cartage, freight, brokerage, insurance, commission and interest on the amount for the period it is in course of transit. The big improvement that has occurred in the dollar exchange is ol very great importance to those wiio have payments to make to the United States, and among those who have to make large remittances to the United States is the llritish Government which must provide a huge sum half-yearly to pay the interest on the war debt. The llritish Government is at all times a seller of sterling exchange or what is the same thing a buyer of American dollars. Just now the llritish Government get more dollars for €IOO than it could say two months ago, and that is a saving to the llritish Exchequer, for less British money is required to buy a given quantity of dollars.