BANK EXCHANGE RATES.

Shannon News, 12 October 1923, Page 3

BANK EXCHANGE RATES.

I An interesting criticism of the charges made by the Australian and New Zealand and South African .banks for remittances to and from London was contributed to t-he “Times Trade Supplement” by a special correspondent-. The writer remarks upon the - fact that while the exchange rates , with , India- and Canada and foreign countries are subject to daily varia,tions, those for Australia, New Zea- ) land, -and South Africa are fixed for long periods, and “the great difference which the banks create between the buying and selling rates over and above any legitimate charge for interest on money used by the banks in financing transactions constitutes a levy on trade with the Southern Dominions.” The writer quotes the circular issued! by. 1 the combine of Ausralian and New Zealand banks on November 8, and discuss-es the charges then fixed. The banks in London charge £2 per cent, for buying demand’ drafts on Australia, land- they alsp charge £1 12s 6d per cent., in London. Allowing thirty days each 1 way, that is sixty days 'at a cost of £3 12s 6d per cent., or £2l ss, per

cent, per annum. If the buying of -demand drafts and the selling of cable transfers in London are taken, the, charge is £2 -plus 255, or £3 5s per cent., and in' this case the bank would be out of its money for time of transit (thirty days). This charge i s equal to 39 per cent, per annum. It is fairly generally believed that, in common With the value of our exchange as compared with foreign countries generally, The British pound in Australia, New Zealand, and South Africa, is regul-ated by the flow of imports of goods between the Dominion -and Great Britain, plus invisible imports or exports such as interest on loans and also such items as “services rendered,?’ e.g., shipping. The writer •affirms that it can be truthfully stated that the charge/ for -exchange is entirely regulated by the banks engaged in and controlling trade with Australia and New Zealand. Every, single .bank engaged in this trade, he says, is in a combine, and they jointly regulate the charge for exchange—i.e., for remittances to and from Australia- and New Zealand, at what seemls, good in their eyes. The cost of remitting money to-day t-o Australia and New Zealand is 25s per cent, by telegraphic transfer, while the banks charge 5s per cent, on remittances from those Dominions to London. making a- charge both ways of 30s per cent!. -Stated broadly, the bank .charge for remittances to foreign countries doeis not exceed 2s 6d both ways, yet the combine of banks controlling remittances between Australia- and New Zealand charges 30s per cent. It stabilised exchange—-at a price! The writer quotes Mr J. F. Darling, a director of on-© of the “big five” banking institutions, as stating that in Australia, New Zealand, and South Africa “the banks combine and issue a tariff -at which they 'are prepared to buy and sell exchange. There is no competition-. ’ This tariff is so high that- when reckoned in terms of interest the difference between the tariff rate and 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 of associated banks is to-day levying 25s on each £IOO remitted to. Australia and New Zealand, together with 5s on each £IOO .flowing Back again to this country. A handsome remuneration would be 2s 6d per cent., each way —ss instead of 30s! The writer concludes by urging, that the Economic Conference should/ consider (a) the bank charges at present being levied, on 1 the commerce of Australia, New Zealand, and South Africa, arid (b) an improved system for the better financing of such trade. It 'should be noted that since the article was written the London buying rates have been reduced by 10s -per cent. In commenting on the London critic’s statement, that while exchange rates are normally determined by variations in the flow of trade, the Australian and New Zealand banks usually fix charges 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 be demonstrated by the trading position of the two l countries, though it requires qualification in its application to the practice during periods of violent, changes. Thus during the last four months of 1920, the. rates for remittances to London were rapidly advanced 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 £46,200,000. During the following year, the balance swung the, other way, the excess of exports from the two* countries amounting to £40,500,000, in addition to which there was heavy borrowing in London. This affected the exchange rates, which were varied half a. ulozen times between February and October, the charge for remittance to London being reduced to 5s per cent, for demand drafts, while the buying rate rose to 35s per cent. In the 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 an 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 reasonable 1o conclude that, if the rates for remittances to London are just New Zealand' exporters may fairly claim a reduction in the charge for brineing out the proceeds of the Dominion’s exports. At the same time, it suggests,. Ilhe attention of the banks might be directed to the fact that, since the last reduction in overdraft rales, there has been a notable improvement in the financial positron, as is evident from, the banking ro-

turns, and a substantial reduction in income tax. The hanks have quite frankly charged their customers with the cost of high taxation, and these has been as least 'an implied promise, that they would receive the benefit of any reduction.”