WELLINGTON NEWS

Hokitika Guardian, 7 September 1931, Page 6

WELLINGTON NEWS

BIG CREDITS.' (Special Correspondent). WELLINGTON, September 4. During the past two or three weeks \ve have heard a good deal about credits running into millions and a good many people are under a misapprehension regaining these credits. When the gold reserve of the Bank of England was drawn upon to an unusual extent by -timid foreigners who had theiy funds invested in London in short-term loans, the Bank of England arranged for credits 'in Paris and New York, the amounts in each case being £25,000,000. This money has not been bori’owed by the Bank of England; what has really, happened is that financial interests in Paris and New York have consented to provide England with £25,000,000 when called upon. Bo far there is no indication that any portion of this credit has been used, certainly there is no indication of it in the weekly returns of the Bank of England. This is not the first occasion on which the Bank has arranged for. outside credit. Tn 1925, when Britain reverted to the gold standard and the Bank arranged for a credit of £60,000,000 with the New, York bankers. Of this amount £40,000,000 was granted by the Federal Reserve Bank of New York, and there •was to be no charge unless -the credit was operated upon. The remaining £20,000,000 was granted by J. P. Morgan and Co., and a small charge was made for the option. For the latter case there was time limit for the option, but in the case of the Federal Reserve Bank there was no time limit. Ihe credits were not used for there was no reason for operating on them, for their m f re existence was sufficient to create absolute confidence in the' Bank of England.

The British Government has \ made arrangements to obtain £80,000.000 in case of necessity, Paris and New York bankers providing half each. This is quite a different transaction to that arranged by the Bank of England. Should the British Government need say £20,000.000 in New York, that ?s 100,000,000 dollars, it will issue what are known as British Treasury dollar bills, or promissory notes maturing at rh« close of the year. If, on the other hand, the Government wants funds in Europe it can issue British Treasury franc bills in Paris. There is not the least probability of the British Government making use of these financial facilities, and th r y may be taken as indicating a measure of caution on -‘•the part of the British Treasury. Foreign investors in British securities, whether short-term or longterm, now have no positive assurance that when they wish to withdraw the r funds they will experience not the slightest difficulty. And they have further, assurance from the patriotic nct'ou of the British Insurance Companies who have mobilised £100,000,000 of their foreign investments which they have placed at the disposal of the British .Government. The Prudential Assurance Company, which is as solid as' the Rock' of Gibraltar, has gone further, for it has offered to exchange its holding of American . securities for British securities. Thus I we can dismiss from our minds the idea that Britain is so hard pressed that she is borrowing from France or the United States—she .is doing nothing of the kind, but is making assurance doubly sure and is demonstrating to the world that the pound sterling lias all its old value and prestige. The British Government and the Bank of England have arranged credits with France and the United States, the two countries that between them hold nearly three-quarters of the world’s monetary gold, and yet those same count’ p s show heavy Budget deficits. France has a deficit'of £48,000.000, owine to diminution of revenue from taxation • and the suspension of the German anmf.ties. At the close of the financial year at the end of June the United States had a deficit of £200,000,000. . Two months of the financial year ended on 'August 31, and already there is a deficit of 387.000,000 dollars (£77,400,000). It is just announced that Ahe American Govern-, ment is borrowing 1,000,000.000 dollars, making with the two previous loans issued this year 2,500,000,000 dollars (£SOO 000 000). America has to face the winter with the care of over 10.000.000 unemployed and a decreasing reserve.