The Guardian And Evening Star, with which is incorporated the West Coast Times. TUESDAY, DECEMBER 23, 1930. INTERNATIONAL BANKING.

Hokitika Guardian, 23 December 1930, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times. TUESDAY, DECEMBER 23, 1930. INTERNATIONAL BANKING.

An exhaustive analysis in a recent Alidland Bank lie view (London) -explains the inactions' of tno Ba.uk for riuci'nationai sjeti.emients and discusses 1110 potentialities of that institution in ic.atiou to world monetary affairs, the bank originated in tho necessity for ostaiblisliiug a mechanical agency lor the payment of 'German reparations by methods that avoided violent fluctuations in the exchanges and, consequently, unnecessary movements of gold from one international market to another. The now institution is a bank of central banks, and the original idea was that it should hold reserves of gold upon which the cash reserves of the central banks would be based; Had this part of the scheme (been feasible, it is probable that a considerable economy in the use of gold would have been effected. ]t soon became apparent that Some of the leading central banks were unwilling to entrust them gold to the new institution, so that the full development o.f the bank’s monetary functions was limited. The Midland Bank Review explains how these reparation payments are effected. The first stage is when, on the loth of each month, the German Government hands over to the bank foreign . exchange to the amount of one-twelfth of tlie sum due in a year. Out of the grins receipts the bank allocates to separate funds a sum sufficient for the service of the German Governments loans of 1924 and 1930. The remainder of the exchange is credited to the national subdivisions of th© annuity trust account, and one of two methods may be adopted in crediting the various treasuries with the amounts due to them. Expressed briefly, the Bank of International (Settlements acts as a clearing house for the vast transactions between debtor and creditor Governments that constitute so troublesome a legacy ol the war and it reduces the aggregate turnover of transactions in the world’s exchange markets to their basic minimum. With the new bank holding large amounts of deposits for the central banks, it might seem that it had considerable power to influence the foreign exchanges, the movements in gold and, in consequence, perhaps, the world level of prices. Upon this matter the Conclusion reached by the Midland Bank writer is that the new institution is powerless to influence the world's price level in the direction of stabilisation at a time when the underlying tendency of monetary developments ifs downward, but it might strengthen a deflationary tendency .by acquiring gold on its own account. At present it holds very little.or none at all, but if, “in accordance with a misguided policy, it set out to build upa metallic reserve of its own, it would superimpose a. new demand on those already exerted by the central banks, and would intensify the scramble (for gold) to which in large part the general downward trend of tlm world price level is commonly attributed,’’ The new bank Ims the power to -smooth out difficulties in connection with important international financial transactions and its directorate is fully representative of the best European central banking experience and skill.