WELLINGTON NEWS

Hokitika Guardian, 23 January 1931, Page 7

WELLINGTON NEWS

1 ‘BOOTLEG ’ ’ EXOHANG E

(Special Correspondent)

WELLINGTON, January ‘2O.

The Exchange rates both on London and Australia have' advanced rather rapidly, and the average individual holds the hanks responsible, because We cannot visualise anyone else having a finger in the pie, consequently the banks are condemned and criticised out of hand. They are pictured as greedy Shylocks bent on extracting the last penny from an impoverished people. Any harsh criticism of the banks just now respecting exchanges would not be warranted, for those who have given the matter some attention realise that the banks have been attempting to keep the rates reasonably low.

■Commenting on the recent increase, a Southern paper said: “It is a conjecture, and we hold a reasonable one, that the latest advance in the rate of exchange to and from London has been practically imposed by the Australian banks trading here, if they or any one of them have decided to pay a higher premium for drafts on London, surely N..Z instiutions would have to follow suit, and what assurance has N.Z, that balances built upon Loudon as a result of purely Dominion business are not being used to support Australian credit, We cannot afford to have the l>ominin regarded as a milch cow by the Commonwealth or the banks centred there, and as far as we can see these exchanges are neither justified or justifiable.”

The vision of the writer of that criticism appears very limited, and of course he cannot see any pustification for the recent advance. The trouble is that we cannot fancy anybody else transacting exchange business but the banks and that is where the critics go astrav.

Those who have given any consideration to the exchange will remember that the hanks in Australia agreed to let the Commonwealth Government have the first call on the London funds up to £36,000,000, so that the Federal Government may meet its London obligations. To carry out this pact the banks found it necessary to ration their clients, and all applications for London funds were closely scrutinised. There were quite a number of people wanting exchange on London, and some of these decided to go past the banks and make other arrangements. Months ago when the rates were first raised some Australian merchants bought wool in Australia and aoples in Tasmania, which they exported, using the funds for meeting London obligations. But there were other exporters who had no obligations in London, and these people saw an opportunity of doing a profitable exchange business. Of course anyone wishing to obtain exchange from pfi vate individuals and finis was obliged to pay a higher rate than was being charged by the banks. Mr C. H. Tranter, Chairman of the Associated Banks in Victoria, stated the other day that he knew of a case were £l2O was paid in Australia for £IOO in London. These outside exchange brokers have been the cause n f the rates 'being advanced, for tlr greater the demands on them the higher Ihe rates charged. But it may he asked where do we come in ?

There are quite a numlx-r of shares which may be classed as interstate such as all bank shares, also the shares of Dalgoty and Co., Goldsborough. Mort and Co., N.Z. Insurance, South British Insurance and others. In addition Australian investors hold some of N.Z. Government securities, also the securities of local bodies. Many oi these shares and securities have been sold to N.Z. investors and the Australian seller has thus been able to establish credit in the Dominion, and if be needed exchange in London through the banks then be looked about for the exchange “bootleggers” and so managed to get money in London.

All sorts of schemes and subterfuges have been practised to obtain exchange on London, and the more insistent the demand the higher the rates. Tt is not the banks ivho have forced up the exchange but the mushroom exchange brokers, and the banks had been forced into action to protect themselves and their clients. Jbe position is not at all to the liking of the banks and it has become so serious that that it is probable that the banks will be forced to act independently. N.Z. has no great volume of London funds, for our exports declined during the past year by about ten millions. The blame for the high exchange rates rests with those who are bootlegging exchange, and not with the banks.