WELLINGTON NEWS

Hokitika Guardian, 5 October 1931, Page 3

WELLINGTON NEWS

A TANGLED SITUATION

(Special Correspondent)

WELLINGTON, October 2

The world monetary situation is in a dreadful tangle, and it is difficult to see how it is to be straightened out except by the co-operation of the three great creditor countries of Britain, France and the United States. Being on or off the gold standard, or possessing much or little gold appears not to make any difference, for all countries are suffering, some more than others. On July 8 the gold in the Issue Department of the Bank of England amounted to £164,619,306, and it was cabled from London on July 11 that “the Bank’s position is extraordinarily strong, its gold reserve being nearly £166 millions, and further sums are in sight which are 'likely to raise it to the high record total of £175 millions before the autumn. The failure to reduce the Bank rate had a depressing effect on the Stock Exchange and counteracted the good impression caused by :the moratorium arrangement.’’ For five successive weeks following that statement, instead of gold flowing into the Bank of England as expected, it flowed out and that rather rapidly, for by July 29, or three weeks after the opt'mistic statement quoted above, the gold holding had fallen to £132,034,694 and by August 12 it stood at £131,547,992 the lowest record for some considerable time.

On July 23 the Bank Rate was raised 9’ oer f-ent. to 3} per cent., the gold holding then stood at £148,773,-846,

. itnlo ng week it was raised per cent., when the holding of goiu n.iu mopped to £102,021,694. Ihe

rate seemed to have checked tthe outflow, for in the following week there was an increase in the gold reserve of about '£1,500,000. In the following week it dropped to £131,547,992. 'Since then the highest amount reached by the gold reserve was on September 9 when it stood at £135,894,625. Ihe Bank Rate was raised from 4-J per cent, to 6 per cent, on Sunday, September 20, and notwithstanding this the outflow of gold continued for the withdrawals for the week ended 'September 2, was nearly £2 millions. The higher Bank Rate does not appear to have functioned as usual, and if the withdrawals continue the. Bank may be forced to make another advance.

The London Clearing Banks usually maintain a margin of 2 per cent between Bank Rate and deposit rate so that depositors will now receive 4 per cent, while prior to July 23 depositors were receiving 1 per cent., The charge made by th'e banks for a large proportion of their loans on advances is normally 1 per cent, above Bank Rate, so that the overdraft rate in .Britain was 7 per cent., which is a dear money rate. The immediate trend of the money market must be puzzling to bankers and financiers, and must continue so until confidence is restored. In the meantime abandoning the gold standard has stimulated speculation in commodities, but what will be the position of those other countres that are operating on a gold exchange standard with sterling as the basis, abandon that standard ? If other countries follow Brita'n's example, and that seems not nrtikely. then the primary producers ill all these countries will be on an equal footing. Of all the commodities the best prospect for a sustained improvement rests with wool. There is ill wool a latent factor which should prove of great value now. Nearly all the raw commodities are under the inlluence of embarrassingly large stocks which weigh heavily upon the markets, but in the case of wool no such accumulations on the scale exist, although of course merchants, manufacturers and even growers have a certain amount on hand.

It is interesting to note that other raw materials and base metals have risen during the past month. Thus tin has risen from £f!4 to £126, a rise of £l2 equal to about 10 per cent. Jute has advanced from about £l6 to £l9 equal to about 20 per cent. Copra has risen from £ll to over £l2 or about 10 per cent, and sisal has moved up from £l2 to |£ls a rise of 25 per cent. An interesting point is that these commodities are products of coloured labour. The purchasing power of Eastern people should now be greater.