WELLINGTON NEWS

Hokitika Guardian, 25 February 1930, Page 2

WELLINGTON NEWS

EXCHANGE RATES HIGHER. (Special Correspondent.) WELLINGTON. Feb. 22. The Associated Banks of New Zealand following the example set by the Associated '"Banks of' Australia "'have', raised the exchange rates on London by 104 per cent for selling with 4 corresponding concessions on buying rates. The selling rates have moved up. very . fast during the. past three months. Taking the telegraphic transferrate it was raised to 42s bd per cent premium. On January 31' last it was raised to 52s 6d per cent; on February 18th there was another advance to 62s bd per cent, and this latter rate is very high for it means in the £. This high rate lias, not ruled for half .a centuryit wehi: up to . 60s per cent during the slump of 1921 when imports were abnormally in excess of exports. It is to-day 2s 6d higher than on those bad days and it merely shows that the monetary conditions in New Zealand and. Australia are abnormal. To the man in tiie street the exchange rates with the variations between the Buying and the selling: rates -is perplexing .if not a closed book. The' rates quoted by the Associated Banks is for selling or buying drafts 011 London. A direct importer has bought, or is intending to buy goods in London , for which spot cash has to be; made to the amount of say £BOO. The importer' would have to cable the money, and ho goes 1 to his banker to buy a. draft on London; that is the bank sells him a draft ; on London; Prior to last week the importer would have had to pay 52s 6d for the draft, that is £BOO plus £2l or £B2l, the £2l represent, ing cost of cabling and other incidental expenses and bank commission. For a similar service now the importer would have to pay £825, ,'whjle) in December last he had only to pay £Bl7. An exporter say of butter lias sold to a London produce merchant £BOO worth of buter. He would draw on the London merchant for £BOO and he would sell that draft to the bank, that is the bank would buy tile draft from him. Just now the bank would give him the £BOO of his draft plus 2s 6d per cent or £9 in additiof. Tho exporter of the butter gets £BO9 here, and the bank gets £BOO from the London produce merchant. This is a very big concession to the exporter for the bank stands out of the money until the demand draft reaches London, a matter of 33 to 40 days. Thus it will bo seen the new rates penalise the importer and favour tho exporter to an/unusual extent.

The position is quite abnormal. Some people are under the impression that the banks are deliberately endeavouring to check imports but this is not really the cose. The high selling rates will tend to check imports but that is not the purpose of the increase. The fact of the matter is that the banks are short ot' funds in London, and the Australia"*! banks are in a worse position in that respect than are the New Zealand banks. The shortage of funds arises from two causes. The Governments and the municipalities have not been able to borrow in London, and" export prices of produce have declined materially. The Governments aim at raising abroad each year what will provide for their interest 'bill as well as for material the/ import and other services rendered for them. Thus they are saved the expense of transferring funds to London. Proceeds of revenue which would be used for this interest and services rendered is transferred to loan account and the ledger is balanced, In that way the whole of the produce of, exports are available for . paying for imports. When imports. exceed, over a series of years, the exports, the surplus is paid for by the public loans raised abroad, so far as they are in excess of interest payments abroad, by the import of private capital or iby the excess of credits brought in by travellers over creditß taken away by travellers, or by a combination of two or more of these series of credits. Australia’s interest bill on loans raised abroad is £29,500,000, and Australia has not been able to borrow anywhere near that amount it is doubt ful whether she has obtained half the amount by loans, treasury bills unci overdraft, mid the difference between whatever amount she has obtained in this way and the annual amount to be paid in interest must come out of exports, and it is this that has caused * the drain on bank funds in London. The fall in export prices has been a contributing factor, so that the circumstances have forced the banks to raise the exchange rates on London-. It will be remembered that a fpw weeks ago the overdraft and deposit rates were raised by the banks. The overdraft rate was raised in order to check the demands by borrowers for bank credit, and the rlcoosit rates were raised to induce those with idle funds or savings to place such on fixed deposit with the banks. As the deposits increase so will the banks , be in a better position to extend credit to borrowers. But the scope for increasing the deposits is lessened by the fact that all our produce is returning less money in the world’s markets than a year ago, which means that the people as a whole have less money to save or to spend and this will become more apparent each succeeding month unless prices improve. Then again the holding up of wool will have to be financed and the ultimate burden must fall on the banks. With funds already none too plentiful this increased burden on the banks must seriously affect the monetary situation and the banks may bo again obliged to increase their overdraft and deposit ?ateg t