WELLINGTON NEWS

Hokitika Guardian, 26 February 1932, Page 7

WELLINGTON NEWS

LONDON EXCHANGE. (Special Correspondent). Wellington, February 24. At last we have an authora-tntive statement on the exchange problem. Mr ,T. T. Grose, Chairman of the Associated Banks, has made the position perfectly clear in a statement released for publication la-st week, The problem arose solely through the needs of the Government. Prior to last year the Dominion Government has been on the London money market annually for a substantial loan, anj the question of exchange did not arise, for out of the loan funds 'London commitments were met, locally out of the Consolidated Fund. .Last year the Government was able to place a, loan, but overcame the difficulty by issuing Treasury bills for i£4,00.0,0u0, with a year’s currency. This year the Government has not the remotest chance of raising any loan in London, therefore the Government was faced with the problem of finding in London'^,ooo,ooo for interest, £4.000,700 to repay the Treasury bills and £2,000,000 for interest on Local Bodies’ loans, or a total of £14,000,000. The Government quite rightly appealed to the Associated Banks to assist 'them in the matter, to which they assented, but pointed out that they did not possess complete control ot London funds, as several ol the large exporters were competitors. The Government could have' approached these large exporters who undoubtedly woulo have clapped on the exchange and then taken advantage of the necessities ot the Government. •

It would have been Very unwise of the Government, under the conditions, not to have adopted the method 0/ pooling London credits, and so making certain of securing the full amount of London funds required and at a reasonable rate of exchange. According to Mr Grose “practically all last year the Bank's telegraphic transfer rate was 10 per cent, premium. 11 til's rate had been too high or too low the outside rate would have shown a marked clixel gonce, for there was a considerable outside market then. But when London funds were much an demand the outside rate was only slightly above the Bank rate, and towards the end of the year, when Lon don funds were not in such demand, tin. outside rate was slightly below thBank rate." Obviously the rate thr is being charged by the Associate' Banks for London funds is the correct rate front a banking point of view, am it must be remembered that this is the charge to all and sundry menu! ill:' |.lv" (lovorninf’iit.

A certain section is clamouring fo the Uhe abolition of the credit pool, o in other words, to give expot let s chance to exploit the Got eminent, to they know full well that the Govern me it must have funds in London a whatever cost, to meet commitments for the Government dare not transfe here the Lang policy of default. That is unthinkable. Lang has given Londo. investors itilie jumps, and New Zealand which fortunately enjoys a good re potation, dare not and must not mi any vi;.ks. Dispensing with the poo will scarcely help the farmers, as ha been claimed. The large exporters ckm to the exchange, and do not. as a rule pass it on to farming clients directly o i| >d:r'< * V as is the 'case with -woo' buyers at the local sales, tor thiougl .i;rcss of competition, they are obliged to take exchange into calculation when assorting values.

If exchange on London rose to 2 ■ per cent, -or 30 per cent, as some penph are anxious to see it rise there vvmih be a terrible dislocation <>l local trade for there would necessarily be a vet; drastic curtailment of imports. :il "' imported goods would rise to war linn levels owing to the didicully of replace. ,mmt. The products of the farm word-' advance also, the cost of living would rLe. while at the same time "iieui ployment would increase. The evononr conditions arc bad em-ngli Git limit mnk ing them w-irse. Next moiiih wc will be made await- of <un serious plig'-t.