BANKS AND TRADE

Hokitika Guardian, 23 May 1931, Page 7

BANKS AND TRADE

REVIEW BY HON. W. P REEVES.

DIFFICULT YEAR

Banking, trade and finance in New Zealand in 1930 is dealt with by the Hon. William Pember Reeves, chairman of the National Bank of New Zealand, in an article he contributes to an international banking supplement to the “Financial Times.” Mr Reeves points out that not since 1893 and 1894 has New Zealand bankingpassed through a year of such difficulty as 1930, and that this year’s position called for skill as well a's abundant caution. Exchange was the special, problem of New Zealand bankers last year, partly through the Dominion’s trading position im ( | partly through its financial connection with Australia.

“Not since the years 1893-94, still remembered by overseas bankers as tllie period of Die Australian bank panic, has New Zealand banking passed through a year of such difficulty as 1930,” states Mr Reeves. “It is true that in 1893-94 the position was incomparably more trying than anything experienced last year. There is all the difference in the world he* tween disaster and mere difficulty! stiff, ■’ difficulty h'-xr been consider* able, and though there is, happily, no bear,on to anticipate disaster, the position in 1.931 will require skid as well as abundant caution.

“The special problems of New Zealand bankers in 1930 were' largely, though not entirely, those of exchange, caused partly by the New Zetland trading positimi and partly by the financial connection of New Zealand with Australia. The demoralised exchange between Australia and London was already giving cause for anxiety in the latter part of 1929. BLOCKING RATES.

“The only effectual method of separating the New Zealand exchange from that of Australia,” he adds, “was, clearly, to impose blocking rates between Australia and New Zealand in order to prevent Australian financiers from taking advantage of the lower rate in New Zealand by sending their money through Wellington, and so eating up the resources required to carry on New Zealand trade with the- Mother Country.

“As late as January, 1930, blocking rates were thought out of the question, as it was not expected that the six New Zealand hanks—four of which are Australian institutions—c°uld he got to agree to such a course. “By March things "-ere so much worse that the New Zealand banks feeding the ground moving under their feet, decoded that something must he done, Backing rates were imposed on tlie transmission of money across the Tasman Sea. It ivas thought to soften the blow by keeping the rates down on genuine trading hills and transactions, and applying prohibitive rates to financial dealings. The rest of the year was taken up with a determined effort to keep the rate of New Zealand exchange on London at about 5 per cent., to which banks in Australia had been driven of ‘rationing’ exchange among their clients. Until January, 1931, these efforts were apparently successful. In that month the stress generated in Australia became once more too great to be re. sisted. “On January 14, the London buying rate on New Zealand for demand drafts moved up nearly £2 10s, and on the 28th came a final move which meant that £IOO in London bought £ll] 2s 6d in New Zealand. “Personally. I regret this last iu.’rease, and hold that it might have boon avoided, though T admit that there were reasons of weight in its favour, and that, high as the figure is, it looks moderate when compared with that obtaining in Australia. It is high enough to he, I believe, without precedent in the history of New Zealand. WHAT OF THE FUTURE? “It may be asked what of U'e future? The answer is that at the moment there is a strong desire to make an effort to prevent further increases. The blocking rates between Australia and New Zealand have been increased and :a re in tile neighbourhood of Hi per cent., although I fancy that unofficially some higher .charges »i‘ f ’ made. At the moment New Zealand is watching Australia in the expectation that something may be done to prevent the exchange of that country soaring to quite legendary figures. For the rest, my belief is th::t most of the New Zealand banks— though rot perhaps all—have so. far bed l able to avoid ‘rationing.’ “It is worth noting that though four of the six hanks are Australian, th 0 two New Zealand hanks do about Go per cent, of the country's business. Furthermore, it may be pointed out th a t on the calendar year 1930, New Zealand’s favourable trade balance was still about £2.000,000, and that in 1929 it had been more than £7.900.000. The figures in 1928 lmd also been' good, s o that the position of the trade balance, though by no means what it ought to be, is hv no mean* desperate, and should improve during the year now in progiess. .“Tt IP's been worse- more than once during the last ten years than it is now, and in 1920 was verv much noise indeed. In that year the exce s s of imports over .exports was no less than £15,000,000. and in 1926 was 01.50 b. 000. In both these eases the position rapidly improved in succeeding years, and an improvement may be looked for confidently now.”