MONEY MARKETS.

Taranaki Daily News, 26 June 1920, Page 9

MONEY MARKETS.

SCARCITY AND HIGHER RATES. Speaking at the meeting of the Bank of New Zealand yesterday, the chairman (Mr. H. Beauchaimp) said;— The conditions of the money markets of the world point to the probability o F scarcity of money and consequent higher lending rates in the not distant future. The delation of the currencies, which is held by most economists to be the essential preliminary to the re-estublis!:-nient of satisfactory financial conditionsand the speedier revival of industry and trade, will inevitably be accompanied by appreciation in the value of money. Reduced supply will mean increased value of the quantity remaining available. A preliminary'movement of this nature has already taken - place consequent upon the restriction placed by leading banking institutions in various parts of the world upon facilities for speculation. An upward tendency in the value of money is apparent. The Bank of England rate is now 7 per cent., to which it was raised from 6 per cent on loth April last. The British Government is paying fij per cent on its Treasury Bills. ' Its Exchequer Bonds with a currency of two years are reported to be yielding over 1\ per eenvto the investor, and flat loans with a currency of 2o years and more are returning to the investor £6 (is !)d per cent. All borrowers, both Government, publie Slid private, must be prepared to pay higher rates for future accommodation. The fairly certain contingency of higher future rates should prompt a very careful scrutiny of the circumstances surrounding all contemplated undertaking*, whatever their nature may be, involving the employment of borrowed capital, in order that would-be borrowers may first satisfy themselves that the project in hand is likely to prove sufficiently profitable „to justify the heavy handicap which the cost of the necessary capital is likely to impose. In the case of Government undertakings, it is important that the authorities should be on their guard to, resist any political pressure designed to force them to' embark in ventures which could very weU be left to private enterprise. ' ' The Prime Minister, the Right Hon. W. F. Massey, has, on more than one occasion, urged the necessity for economy, and the injunction cannot be too strongly emphasised at the present time both as regards public and private expenditure of every-description. Unfortunately, the public does not yet appear to have' appreciated this necessity, because expenditure of every kind continues for the most part on as lavish a scale as ever. But in this respect New Zealand is not singular nor by any means the worst offender. The whole civilized world has been indulging in a riot of extravagance, and the reckless outlay has contributed to feed a flame which, if not quenched, may shortly develop into a conflagration which may threaten the very foundations of ordered civilization. It will be noted that the Minister of Finance has just issued the prospectus of a Government Loan of two millions, with a currency of ten years. The issue price is to be par and the rate of interest five per cent., subject to income tax. The Minister further intimates that another loan, of considerably larger amount than this, is practically certain to be offered locally be fore the end of this year. The Minister of Finance is, I believe, wise in not endeavoring to obtain his requirements in Britain or elsewhere outside the Dominion; such borrowing if practicable would at present be unduly expensive.