WELLINGTON NEWS

Hokitika Guardian, 25 March 1930, Page 5

WELLINGTON NEWS

EXCHANGE RATES AND TRADE

(Special Correspondent.)

WELLINGTON, March 24

The Associated Banks of New Zealand on Tuesday of last week raised the exchange rates New- Zealand on London by 10s per cent., and also raised the rates in Australia, but in the latter case importers engaged in genuine trade get a concession of 20s per cent, 'the advance in ttye rates was not unexpected after ai similar movement had been made by the Associated Banks of Australia, and the fact that the local banks delayed making the advance for a- week and then raising the rates by only a half the advance in Australia seems to indicate that the banks were reluctant, to further penalise- the importer, and that they had to,;* yield to force of circumstances, for it , jnust be remembered that the Australian money market influenced a big influence over our market. - >

Apart from this the Bank had no sound reason for raising'the exchange for New Zealand’s trade position is vastly different from that of Australia, for we have a record of favourable trade balances for the- past two years at least while . Australia has: had a series of. trade deficits. It would be as well to get a clear conception of the relative positions‘of Australia and New Zealand, in respect to overseas trade

For the seven months to the end of January last the trade of the Commonwealth shows ah adverse balance of about £25,000,000, that is the imports exceed the exports by that amount, or to put-it another way she has purchased abroad £25,000,000 more than she has sold to foreigners. This is not the first occasion on which has had an adverse trade balance but such balances had not occasioned any trouble or anxiety because her loans abroad were in the aggregate more than the traded deficit and therefore the exchange position was not affected to any extent. Out of the loan money the interest due abroad was paid and the excess helped.to finance-imports. •

Just now added to an adverse trade balance Australia cannot borrow abroad and she is therefore under the painful necessity of finding thb credits to pay interest on the loans and to cover the. deficit on trade. 1

Perhaps at no time in her: history had Australia to pay out abroad so large a sum in the aggregate as ax present. The difficulty of the position is intensified by the fall in the prices of wool and wheat and by the holding policy preventing the free flow of exports. Australia has had to: export several millions in gold to help ease the position and will probably .have to send several more millions before the situation ends. Australian credit in London is near the point of exhaustion and therefore it has been necessary to' ration this credit, hence the high exchange rates on London, The New Zealand position is. quite a different one. Our exports last year totalled £55,579,063 and the imports £48,797,977 showing that the exports exceeded the imports by £6,781,006, and the figures -for 1928 are even better for the exports for that year totalled £56,188,481 and the imports £44,886,066, showing a balance in favour of the Dominion of £11,302,215. In the two years 1928-29, notwithstanding that last year there was an increase in imports of £3,910,797 over 1928, the aggregate credit balance for the two years amounted to the appreciable sum of £18,083,301. We have had no trouble about loan flotations at any time, so that our banks must have held ample credits in London to meet all the normal demands of the Dominion.

Some people here believe that the banks raised the exchange rates to check imports in view of the- figures stated above. The banks have been obliged to raise the exchange rates in self-defence, just as the Bank of England was obliged to raise its discount rate to check the flow of money to New York'. The best and most effective gesture by the New Zealand banks has been the raising of rates on Australia except in respect of bona fide transactions. This will tend to check the imports of Australian securities.

New Zealand investors have been somewhat rash in their purchase of shares on the Australian Stock Exchanges and have rather put up the prices against themselves. Bank shares have not reached the point of yielding a fair income return, but of course they are not being bought for that, but for capital which is a long term job, for Australia will not recovev from the slump in a hurry, and without this support Australia will not go back to the prices of six months ago for a long> time if ever. The high exchange rates'on London has scared the importers of motor vehicles for in January last the number imported was 1855 against 3227 in January 1929,' and in December last the number was 1600 against 2324 in December 1928.