WELLINGTON NEWS

Hokitika Guardian, 10 September 1929, Page 2

WELLINGTON NEWS

STRINGENT MONEY MARKET. (Special Correspondent.) WELLINGTON, September 7. When the New York Federal Reserve Bank rediscount rate was raised from 5 per cent to 6 per ceiit in July, attention was focussed 'on. the state of the 1 world’s money markets. It was then made clear that monetary conditions were in a very unsettled state and that the probability was that the conditions would become worse before they ,were better. Then folldwed a lull during which some wiseacres began to suggest that the banks in the Dominion should lower their overdraft rate. Of course these people cannot spe beyond their noses, r but they are very disturbing with their noise. Now the effort of the Commonwealth to raise £5,000,000 in London by the issue of bills with twelve months’ currency has again concentrated attention on the state of. the money market. It may be explained that the procedure in connection with the issue of ' bills is different from the issue of a loan. In the case of the latter the loan is underwritten, that is to say the issuing Government is • guaranteed the amount whether it is taken up by the public or not. Furthermore, the price of the loan is fixed per tent, and the investor is invited to apply for the loan at the price, fixed; This is what is known as an “ application ” loan as distinct from a “tender”, loan. In the latter case there is' no price fixed, and investors are invited to bid for the loan at the highest price per cent they are prepared to give. Most New Zealand and Australian 1 loans are “application” issues and are invariably underwritten \ , Y ,■ A K

With respect to bills no price is fixed, indeed no price can bp fixed. Investors' are askedi tQ' namc tbe rate 'fit which they wdj discount that is the rate per Cent'. ' ’ Fpr '.the' Commonwealth V: Government i;' bills ‘of £5,000,000 issued lastweek the average discount was £6 3s.pe(r cent., that is the Federal Government;Areeeiyqfc from the buyers £33 17s per pent:, and redeems the .bills at . maturity)at £IOO per cent!. Short-dated.'iriyesthients pf this character are much' .|avqured!-by London bankers and financiers, as .}}' enables them, to invest ■fl'oatipg supplies of capital. British bills and India’ Council hills are cohstaqtly coming on the market. - '■' <■'i v...

’There is no doubt that; - Australia has paid dearly to have its bills discounted. But the moment was'inopportune for any considerable borrowing, .for the money market is in ■ a strained condition. But Australia is not alone in having to pay a high price for discounting Treasury-bills; for the British Government,' which also issued Treasury bills, about the same time, as the Commonwealth, had to allow 5£ per cent discount. The average previously was £5 7s 6d per cent, that .was ip July, so that there has since been an increase of £th per cent, for its last loan, whereas previously it was able to raise its loan's at 4$ per cent.

There is no getting away from the fact that money is dear in Europe and America, and preserfcly the wave of dearness will beat on the shores of New Zealand and Australia. The Commonwealth Bank in its . half-yearly report has taken steps to prepare the people of' Australia to expect the money, market-tp become dearer. -The Commonwealth r ßankr states', i that although the Bank of England rate remains at 5% per cent, opinion is speculating upon the possibility of a Hardr ening rather than a reduction of the Bank rate. There exists strong evidence that the position will become worse ‘before it is better.

There has been a big raid on the Bank of 'England gold reserve, which at the time of writing stands at £136,362,000,' whereas the Cunliffe Commission stipulated for a reserve of £150,000,000. The heavy withdrawal 'of gold from London has been made possible by the foreign exchanges which in' many cases are against Britain. Thus fhe exchange on New York is 4.84$ dollars to the £, which is just the merest fraotion above the gold point,' that is the point at which it would pay fo ship gold rather than buy dollar exchange. The mint par of exchange with Paris is 124.21 francs to the £, while the exchange rate is 123.845-francs. At'the time of writ-ing'the-'exchange with Berlin, Brussels, Amsterdam, Geneva, Stockholm, and Vienna is against London. The disturbing factor with the ex_ change is . New York. Call money in that city is still very high, for it was ruling at 9 per cent the other day. To add to all the troubles the autumn demands throughout Europe for credit must'- be faced and asj.the supply is alroady somewhat short, the pressure is bound to force up money rates. That is the prospect.