EXCHANGE POSITION

Rotorua Morning Post, Volume 3, Issue 630, 7 September 1933, Page 4

EXCHANGE POSITION

The Government is plainly agitated over the exchange position, which has been growing worse during the last few months. Funds are accumulating in London, and under the Banks Indemnity (Exchange) Act the Consolidated Fund is liable for 15 per cent. of the premium on exchange in the event of the money being unabsorbed. So long as the rate remains at 25 per cent., there is always the possibility of the Government being able to dispose of surplus exchangds withont loss, but, judging by the present position, it would appear that the State will have a substantial bill to meet out of the current Budget. Under the Act, the ' Bank of New Zealand acts as the Government's agent for the buying and selling =of exchange on London, and it is authorised to buy surplus exchange held in London by the other banks, or re-sell exchange to them. Payment for exchange purchased by the Bank of New Zealand may be made either in cash or by Treasury bills, discounted at a rate to be mutually agreed upon between the Government and the banks, but not exceeding the j rate for overdrafts on best accounts. The Minister of Finance is empowered under the Act to invest any surplus exchanges. The provisions of the Act are too vague for one to be able to form an accurate estimate of the Government's liability. The basis of the agreement between the Government and the banks has not been disclosed, but it is evident that the banks will not hold surplus exchanges for long periods and that judging by the present trading position the accumulated funds in London must be considerable. Even the interest on the Treasury bills issued by the Government must be substantial, and may be

a source of embarrassment to Mr. Coates' next Budget. If the Government is compelled to lower the rate the position will be even worse, as it will then have to meet the premium as well as the interest on outstanding bills. The anxiety of the Government over the situation is indicated by the action of the Treasury Department in respect of a big building contract which was recently let by the Government. In order to ensure that the materials which would be imported for the job were purchased in London and paid for there, the Treasury Department arranged with the cOntractor to pay for the materials through the High Commissioner's offiee. This procedure ensures that surplus exchanges will be used for making the payments, and prevents the investment of the money in New Zealand until the exchange rate falls. The investing of money in this way has now1 b.ecome a widespread practice, and may provide an additional problem for the Government. At least one. firm of motor-car exporters has not lifted one penny from New Zealand since the exchange was raised, but has invested the money from saies • within the Dominion. This means that when the exchange falls, this company will be able to lift its money, and not incur any loss on high exchange. After all the New' Zealand fixed deposit rates are just as attractive as those in any other part of the world.