BANK EXCHANGE RATES.

Otaki Mail, 15 October 1923, Page 4

BANK EXCHANGE RATES.

Ail interesting criticism 01 the j ' ohai'ges-made by the Australian and i New ZealaJid and South Airican banks ] lor remittances io and from London , was contributed to tlie "Tunes Trade ' 'Supplement" ny a, special correspond-- , eiil. The .writer remarks upon the I: : tact that .while the exchange rates • i with India and Canada and foreign , j countries are subject to daily varia- \ • lions, those lor Australia, New Zca- ; (land, and South Africa are fixed for long periods, and "the great differ- j ! nice which the banks create between I the buying and selling rates over and I above "any legitimate . charge lor in- ■ tei'cst on money used, by the banks : in financing transactions constitutes • a levy on. trade with the Southern Dominions." The writer quotas the ; cik-cu'Jar issued] l.jy the combine of 'Ausralian and New Zealand banks on J 1 November 8, and discusses the cha.rg- | e.s then fixed. Tiie banks in London 8 charge £2 per cent, for buying de- i iiki.nd drafts on Australia, iand they | ■;-!si) charge £1 12s Gd per cent., in i London. Allowing thirty days each | way, that is sixty days at a cost of j £:i*l2s Cd per cent... or £2l 5s per | rout, per annum. If the buying of j demand drafts and the selling of oable transfer? in London are taken, the , charge is £2 plus 255, or £3 5s per s cent.,' and in this case the bank would i be out of its monev for time of transit > (lira dr, el This charge U equal io \ 39 per cent, ner annum. It, is fairly { generally believed that, in common } with the value of our exchange as j compared with foreign countries gen- ; e >"■, the British pound in Australia, \ ?;. ■■;'.' /'/'■; ;..rid, fiiid f-onth Africa. Is; regulated by. the flow of imports of! iroTals .between tlie Dominion- and \ Great. Britain, plus invisible imports or experts such, as interest on loons ! and also such items us "services ren- ' c- jd," e.'g., shippinp '< rl!p writer affirms, that it con be truthfully stat- '. cd that the charge for exchange is ' entirely refiulalcd by the banks encraired' in and controlling trade with Australia and New Zealand. Every single bank engaged in this trade, he , says, is in a. combine, and they joint- . ly regulate the charge for exchange—i'.e.. for remittances to mnd from Aus- ■ trails ranrt New Zealand, at what ■ seems good in their eyes. Tlie cost ; of remitting money to-day io Austral- : ia and N'ew Zealand is 25s per cent. ; by IcTerrrnphir transfer, while lite hanks olvarr.ee as per cent, on rein it- ! lances from those Dominions to Lon- j clon. nvaking a charge both ways of >

30s per cent. Stated broadly, the bank charge for remittances to foriciiu countries does not' exceed 2s Gd | frith ways, yet the combine of banks | controlling remittances between AusJ'tralia and Now Zealand charges 30s Iper cent. It stabilised- exchange—at ja price! The writer quotes Mr J. Y'!Darling, a director of one of the "big J five" banking institutions, as stating ] thai hi Australia., New Zealand, and I South Africa "the banks combine and Pi-sue n tariff .at which they are pre--5 pared to buy find sell exchange. There jis no competition. This tariff is so hbdi thai when reckoned in terms of in+erest the difference between the tarirf rale a.n'd the normal rate of interest constitutes in effect a levy on '. the whole of their import and export, trade. . . . at present equal to 8 per cent. p.a. on an average and has been higher." The facts of the present position, as the writer summarises them, are that the combine or associated banks is to-day levying 25s on each £IOO remitted to Australia and New Zealand, together with as on each £IOO flowing back again to this countrv. A handsome remuneration I would 'be 2s fid per cent., each way {—Cis instead of 30s! The writer conl eludes bv urging- that the Economic j Conference should/ consider (a) the tb'i'ik cherts at present being levied, '.on the commerce of Australia, New Zealand, «md South Africa, and (b) ' an improved system for the better financing of such trade. It should |be noted thai since the article was 1 written the London buying rates have , been reduced by 10s per cent. In com- [ meriting on the Loudon critic's state{ment, that while exchange rates are normally determined by variations in I the flow ui trade, the Australian and New Zealand banks usually fix icharges that, remain in force for long , periods without reference to charges in the trade position, the New Zealand Herald says that at the moment the (justice of'this statement appears to ibe demonstrated by the trading position of the two countries, though : ' requires qualification in its applical tion to the practice during periods of I violent changes. Thus during the last . four months of 1020, the rates for remittances to London were rapidly ad vanced'and maintained on a high scale during, the period, of excessive importations For the 12. months ended June 30," 1921, both Australia and |New Zealand had adverse trade balances, the combined total being £4C,- ::■;■>. During the following year, «the balance swung the other way, the {excess of exports from the two countries amounting to £40,500,000. in adj dition to wle'ch there, was heavy borrowing in London. This affected the

'xchF.nge rate-., which were varied half a dozen times betwefen February nnd October, the charge for remittance to London being reduced to 5s nor cent, for demand drafts, while the buving rate rose to 35s per cent. In tlie view of the London critic these charges are too" high in any event: nor Is it apparent why the . same scale should'still be in force in spite of another radical change in the trade position. For the last producing year. Australia had an excess of imports of £1,375,000, while the Dominion's favourable balance was reduced to £6,900,000, the combined result being nn adverse balance of nearly £7,000.000 and a difference in comparison with the previous year of £47.000.000. The • New Zealand Herald considers it reaj scalable to conclude, that, if the rates j for remittances to London 'are just, i New Zealand exporters may fairly claim a reduction in the charge for brincing out the proceeds of the Dominion's exports. At the sCTie time, it suggests, the attention of the banks might he directed to the fact that since the last reduction in overdraft raxes, there has been a notable improvement, in the financial position, a? is evident from the banking re--1 turns, and a substantial reduction in income tax. The banks have quite frankly charged their customers with the cost of high taxation, and these lias been as least an implied promise j that they would receive the benefit of any reduction."