WELLINGTON NEWS

Hokitika Guardian, 10 August 1929, Page 2

WELLINGTON NEWS

DISTURBED MONEY MARKETS.

(Special Correspondent.)

WELLINGTON, August 7.

The European money markets are

disturbed find money threatens to be dear. There appears to be a scramble for gold, for the metal is the basis of credit. Late in January and early in there were heavy" withdrawals of gold from)ihe .Bank of England, and the metal reserve!”which ori January Ist stood at £155,123,000, dropped

to £149,626,000 on* February, 6th, and

next day the... Governor and 'Court of the Bank of 'England raised ‘ the - discount rate per cent to 5 per cent. That iheaftt that deposit and overdraft rates of all the brinks in the . country were raised. HBefore Britain reverted to the gold, standard a commission of which -Lbrd’Cunliffe Was chairman, made certain- important re-

commendations, one was that the,. Brii tish Treasury note issue should be placed under, the,; control of the Bank df England, and another was that the Bank’s holding'of gold should not be allowed tb fall below £150,000,000. On February 7th as shown above the gold reserve was below this limit, hence the rise in the bank rate. • At that time the New York rate was 5 per cent

and it was the demands 'of Germany and America;, fpr gold that caused the Bank to raise’ its rate. Last week owing tb withdrawals of gold by France the gold hoard of the Bank of England dropped to ;> £1.41,375,000, the lowest since the - reversion 'to; the -gold standard, and yet the Bank’s authorities did not think-it necessary to raise the discount rate from which it may be inferred that there are special circumstances attached to the withdrawal which in no way imperil the position.

The action' of the Bank cannot be questiorfed for that old' and important institution is;/controlled by eminent bankers and • financiers whose fingers are at all times on;the pulse of the world’s, money markets, and they know what they are doing. Ifhe Bank of England is the custodian' of Britain’s store of gold; and controls. the credit structure, and although the interests ofthe proprietors are, not neglected, . the Bank must, consider the/ interests. of the nation. - The Bank ; Court have raised the rate, and in this connection it may he of interest to ppiht out that when the j-Bank raises its interest it does so by 1 per cent at a-time and reduces it by j per cent. Had the Bank raised its rate last week it Would have gone up to 61 per cent, and such a rate Would be a .big burden on traded The disturbed state of the European money markets is primarily due to the conditions ruling in -the United•• States. For more than two years an unhealthy craze for speculation in Stock .Exchange- securities, has gripped, the nation, and the Federal Reserve Board has been trying for many months past to put a brake on this speculation, but Without success. To understand the position it is necessary to explain that there are twelve Federal Reserve Banks acting independently , but all controlled by the'Federal Reserve Board at Washington, At the beginning of last year the rediscount rate of the Federal Bank of New York was 31 per cent, 'and'was raised by \ per cent on three occasions jfco 5 per cent at which - rate it now Stands. ; . i -

There are certain hanks which are Inembers of the Federal reserve and ’the latter rediscount classes‘of bills for members; of the Bank. j Most of the transactions on the New York Stock Exchange are done on margins, that is a certain sum is paid down by the buyer and the rest is financed by the broker who in turn borrows from elsewhere.. These loans to brokers are mostly called loans, that is loans payable on demand, there is comparatively little money lent on time loans, and time loans may run for a week or a month; or perhaps six months. On June 20th last the loans to brokers totalled £1,084,000,000, calculating , 5 jdollars.'tb the £. , Of fjiis total only a small proportion Was advanced by member banks otf the Federal. Reserve and another small proportion was loaned for account out of town banks and over £400,000,000 was [advanced for other account. This latter would be large corporations with idle funds, that is funds not immediately required and funds from foreign Sources. The Federal Reserve can control, only the member banks and as their loans to brokers represent but a small proportion of the total raising the rediscount rate would have no jßffect. ,

Call money in New York has not gone below 6 per cent, it was 12 per tent on 'one day last week, and was as high as 20 per cent on March 20th, although that is not the highest on record. .The rate varies almost from hour to hour, depending entirely upon supply and demand. By reason off her position as the principal creditor nation and owing to her large favourable trade balance the United States can’ draw gold from Europe almost at will. Money will become dearer during the rest of the year, for there is always a demand . for credit in the European autumn.