WELLINGTON NEWS

Hokitika Guardian, 7 March 1932, Page 6

WELLINGTON NEWS

WAVE OF CONFIDENCE,

(From our own Correspondent). WELLINGTON, March 5. The reports from England continue jto be most optimistic, and a wave of confidence is inundating London, the capital city of the Empire. The news cabled to the Dominion early in the week stated that gilt-edged stocks were surprisingly buoyant. The Stock Exchange was excited when the War Loan reached par and continued to rise. War Loan stock carried 5 per ■‘cent, interest and if it continues to Wise as seems very probable the Ohani ic.ellor.■'tjghf the Exchequer will be fable the stock into 4 per Wcbnt,, and a savings of 1 per cent, nt th’dCpi'esent time would be . worth a :goofk~deai .to the Treasury and the country.

What is the cause of this wave of confidence, when less than six months ago foreign countries declared their lack of confidence in sterling and withdrew their London credits ? The wave of confidence emanates from Europe and the United States, for they now see that- Britain is recovering fast. The Budget is balanced, trade is showing some recovery, the circulation is being maintained without inflation and the wholesale price level is tending upwards. These facts are patent to foreign observers, and the people who withdrew their credits last year -are*- now hurrying .-their funds "back to London. . ...

The .most, cheering note in the . cabled news is the statement made by that 'eminent economist Mr J. A. Keynes, wlio; with , other, economists expects an .early .depreciation of the commodity value of gold, that is the value of gold measured by commodities will depreciate, in other words" commodity values will rise, and money will become cheaper. in commodity values necessarily means cheaper money. The economists maintain that if the domestic or the internal purchasing power of the pound remains stable, sterling will approach par within six months. To-day the pound sterling is worth 14s 2d, but it is steadily creeping up, and it is most likely that it will reach par before the time limit of six months. Furthermore Mr Keynes «x----•pe.cts, an 1 undermining*-of - Frknoe’screditor position before 1 1933. This would be an immense relief to the world for' France has misused her power as a creditor country and has aimed at political domination of Europe through her bulging bags of gold. That Mr Keynes is not far wrong in his diagnosis of the situation is proved by the opinions attributed to M. Calliaux, one of the leading statesmen and financiers ot "France,’ who' fear disaster - if the influx of gold into France continues. It is believed that there will be a further reduction of the French Bank rate, which now stands at 2-J per cent. The removal of the exchange restriction is also expected, tints consolidating confidenec. in. sterling, ...which., -will inevitably' restore London’s lost financial business. London has been for fully a century the clearing house of the world, and a “bill on London” has been long recognised as the safest international currency. Europe and the United States have missed the services of London in this respect and they are hastening to restore London to its rightful position. The movement that must inevitably take place just now is the cheapening of money. From September last and up to a few weeks ago a tight money market was the feature of every great centre. The Bank of England was. the

first to make a definite reduction move and reduced the discount rate from 6 per cent to 5 per cent., and raised it bv 1 per cent. The example of the Bank of Eugland ‘was quickly followed by the Federal Reserve Bank of New York, and the Bank of France.is bound to do likewise.

But the Bank of England cannot maintain a 5 per cent. Bank Rate in vie\v of the low rates in Paris and New" York unless she .is specially ankious to attract foreign funds, r which is scarcely likely. Probably before these lines appear in print we will have heard that the Bank Rate has dropped to 4 per-cent., thus further contributing to a period of cheap money. The leaven is confidence, and confidence is sterling.