ECONOMISTS MEET

Sun (Auckland), Volume IV, Issue 944, 10 April 1930, Page 10

ECONOMISTS MEET

NEW ZEALAND’S POSITION RECTIFYING EXCHANGES “New Zealand's external trade statistics for the past 50 years have placed this Dominion in the ranks of th» ■mature borrowing'' countries. Interest on external obligations has. since tlio late eighties, been enough to outweigh New Zealand’s net annual borrowings abroad, thus, save In years corresponding with the raising of exceptionally heavy loans abroad, her external trade statistics have shown an excess of recorded exports over recorded imports ’’ In these terms Dr. E. P. Neale opened his lecture at the annual meetins of the Auckland branch of the Economic Society last evening. As all new borrowings by New Zealand from abroad tended to be reflected by a corresponding swelling of imports, in years of exceptionally heavy net overseas borrowings, an excess of i m . ports over exports may emerge that is not necessarily an unhealthy sign. The disturbing influence of the fluctuating factor of the new borrowings was. t n fact, the principal drawback of the balance of trade figures as an index of New Zealand's prosperity or the reverse.

A New Zealand importer, by paying for his goods, either decreased his bank deposit or increased his bank overdraft. Consequently all imports tended to lessen the Dominion's figures for the ratio of bank deposits to advances. On the other hand, an exporter in receiving payment for his goods, either reduces his overdraft or increases his deposits. Plence all exports tended to increase the ratio of bank deposits to advances. In much the same way, all payments made from New Zealand tended to decrease purchasing power in the Dominion, while payments made to New Zealand tended to increase it.

New Zealand’s bank deposits normally exceeded advances by about 10 per cent. But an adverse balance of trade was likely to usher in a period of low bank deposits in relation to advances, while at tho same time, the London balances of the banks operating in New Zealand were likely to be depleted, so that, when goods were being imported into New Zealand, tho banks had difficulty in paying* out from their London resources to the shippers or merchandise. To remedy such a state of affairs there were three methods normally available to the banks. Firstly, an adjustment of the exchange rates between London- and New Zealand in order to encourage exports fr ..n New Zealand and discourage imports. Secondly, the raising of the New Zealand baniv rate to check borrowing on overand to encourage deposits, and thirdly, credit rationing with similar effects to the above methods. IDLE GOLD Discussing the anomaly of adverse exchango rates and superfluous stocks of gold being held in the Dominion. Dr. Nealo said that, were gold available, it would pay to securo it from tho banks 10 meet external obligations by exporting it. Unfortunately, Orders-in-Council, which had been extended from tune to time since tho war, were still in force, making bank notes legal tender, so that it was not possible to obtain gold from the banks, although the right to obtain gold for export existed before the war in New Zealand and was now conceded in Britain, as regards gold in certain quantities, and in other countries. “If New Zealand followed the example of such countries, it would bo possible to apply a remedy almost automatically on occasions like the present. While the exchanges of Australia and New Zealand remain so directly interdependent, however, and uniform rates of exchange are fixed by the associated banks, dominated by Australian conditions, the benefit of gold shipments would be largely lost to New* Zealand unless freedom to ship gold was also allowed in Australia." said Dr. Neale. Approximately 60 per cent, of the gold reserve of £6,600,000 in New Zealand could be shipped to London, and employed there to much better advantage than in the Dominion. At the conclusion of the lecture Professor H. Belshaw said he was wondering whether it was not time to get rid of all the gold held by the banks in New Zealand, and not just 60 per cent of it. It was difficult to see any .reason why all tho gold not be released and used in London to purchase readily saleable securities.