DOMINION FINANCES

Wairarapa Times-Age, 11 August 1938, Page 8

DOMINION FINANCES

BETTER FEELING APPARENT IN LONDON BELIEF IN NEW ZEALAND’S INTEGRITY. RECENT RUMOURS DISPELLED. Reliable and responsible circles in the City of London hold a high opinion of New Zealand’s financial integrity, and do not doubt the Dominion’s ability to meet her commitments. There is no agitation, and certainly no alarm, at the reduction in the London sterling funds, although it is natural that a close watch is being kept on the position. The Dominion's stocks and bonds, recently marked up, are expected to remain steady at the higher level, and in the absence of any untoward incident in the Dominion, no fall is anticipated. Such were the opinions expressed in the City this week when inquiries were made following upon the inferred uneasiness caused by the suggestion that the Government was imposing exchange restrictions. These rumours resulted upon reports from Auckland that there had been a refusal in London to. sell sterling. They were subsequently dispelled by the Prime Minister’s assurance that the Reserve Bank had not changed its policy, and that the trading banks were following the normal course of conserving their oversea funds.

STERLING BALANCES & COMMITMENTS. Further reassurance was provided by the head office of a New Zealand bank stating that there was no refusal to sell sterling, and consequently no need for traders' requirements to go unsatisfied.

At the same time, the fact cannot be overlooked that in the past two or three years the London credits of New Zealand have been reduced. Should this tendency continue and. the limit of its fall appear uncertain, then obviously there would be cause for concern.

But this is not anticipated. It is appreciated in London that the Dominion’s sterling balances are sufficient to cover her commitments for the next two years without difficulty. It is also recognised that, while there has been a fall in export prices and imports have been maintained, there is invariably a time-lag in a corresponding fall in imports. It is further realised that un-. der the system of guaranteed prices there is some delay in the payment of funds into the Reserve Bank, with a consequent apparent depletion in the sterling balance.

LONDON’S ATTITUDE NOT HOSTILE. Already there is a tendency for the adverse balance of trade to correct itself, and this is regarded as the natural and logical sequence to the decline in export receipts. While expecting that this tendency will become more definite, it is natural that London should follow the position closely, particularly as a number of holders of 1940 bonds do not forget that these are due for repayment in 18 months. So much has been heard about the City’s fears concerning New Zealand in the past few years that, in some quarters, there has arisen an impression that London has adopted a hostile attitude toward the Dominion. But nowhere would such a view be more deplored than in the City. It is true that there has been some trepidation at certain measures introduced by the Labour Government. But there is no political bias in this. In financial circles New Zealand is naturally regarded as a field for investment, and any action by a Government, whether Socialist or Conservative, which may give rise to the suggestion that the Dominion’s credits may ultimately, be affected, causes a certain uneasiness. UNFORTUNATE IMPRESSION. In New Zealand's case, a somewhat unfortunate impression was caused a year or two ago by the proposal to pay interest in London on certain bonds in New Zealand currency and not in sterling, together with various gtatements indicating that New Zealand might consider steps to secure a reduction in interest on its London loans. These impressions were never entirely removed. Consequently, when the Government’s pension scheme was announced, and there was a cry that the Government was spending and intending to spend almost unlimited sums, certain investors in New Zealand stocks were adversely influenced. They began to sell out. For a period, the London market was comparatively flooded with New Zealand stocks; prices fell.

When the lowest point appeared to have been reached, a logical reaction followed. Nervous investors—and they exist in every market—knowing little or nothing of New Zealand, had paved the way for people with a better knowledge of the Dominion, and an eye for a good investment. Gradually the stocks and bonds began to be bought up, especially by New Zealanders in London. BELIEF IN THE DOMINION. Soon there arose something in the nature of a scarcity of these stocks in the market. About this time the High Commissioner, Mr W. J. Jordan, made his reassuring remarks about New Zealanders’ ability and determination to meet their liabilities. With an eye on market conditions, brokers immediately began marking up. Today it is not an exaggeration to say that the stocks and bonds are largely held by people with a knowledge and belief in the Dominion, and that there is unlikely to be another Severe fall unless —and it is a natural pro Vision—there is any untoward incident in the Dominion, dr injudicious statement from responsible quarters.