WHAT HAPPENS TO MONEY?

New Zealand Listener, Volume 1, Issue 10, 1 September 1939, Page 8

WHAT HAPPENS TO MONEY?

DR

W. B

SUTCH

Answers Some Questions

Does It Stay Here Or Does It Leave The Country?

* One of the results of Parliamentary broadcasting has been a great increase in the number of people interested in public finance. The Budget debate in particular has made people ask how money leaves the country, if it does leave, and what happens to it if it is not true that it is sent out of the country. We have therefore asked Dr. W. B. Sutch to answer these questions in non-technical language: esting question-how does money leave the country? The operations of the Post Office may furnish a clue. Does the Post Office send any money from Wellington to Auckland to make payments, say, for money orders? The answer is "mainly no." Many people in Auckland remit money to Wellington, just as many in Wellington remit it to Auckland. This means that money-notes and coinis being paid into each office and being taken out of each office, and as long as the bookkeeping is kept straight, the money can keep on going in and out of the Post Office in one town for weeks on end. Yet at the same time it assists in settling a great number of transactions taking place all over New Zealand. It would not be the usual thing for coin or notes to be sent from one office to another. oy Budget debate has raised an interMoney Stays In Its Own Territory ; Generally speaking, actual money does not leave a particular district unless someone posts it away in an envelope or takes it away in a pocket book. Now-does money go out of the country? Is it any different from the Post Office procedure? If a man wants to send "money" to London, he goes to a bank and asks for a bank draft-which is a document something like a money order. He sends this away and the person in London to whom he owes the money takes the document to his bank and draws out money in English currency. But no money moves from New Zealand to England. . Similarly, customers of banks in Australia, England, the United States, Japan, Java and France and so on are sending drafts to New Zealand instructing, the New Zealand banks to give New Zealand money to the New Zealander who presents the draft. However, no money is sent to New Zealand. Otherwise our banks would fill up with Australian pounds, English pounds, American dollars, Japanese yen, Javanese florins or French francs. What happens is that these foreign banks keep accounts with New Zealand banks and New Zealand banks keep accounts with them, and at the end of every week, month

or quarter-the period of time doesn’t matter -the accounts are added up. When Payments Do Not Balance If they balance-well, there is no problem. Let us assume, however, that more money: has been paid out in England for New Zealanders who had bills to pay there than has been paid out in New Zealand on behalf of Englishmen who had bills to pay in New Zealand. In this case the New Zealand banks would owe the English banks some money, and it would be English money. It is of no use our banks shipping some New Zealand pound notes because the English people cannot do business with New

Zealand currency-no more than we can do business with Italian lire. Well, where do the New Zealand banks get English money? The usual procedure is to export butter, cheese, lamb, wool, and get it by the sale of these goods. And every year this English money, New Zealand’s "sterling funds," is used up in paying for our imports and in paying the English bondholders the interest on our debt, and in making other payments to English people due to them from people in New Zealand. But no money passes from here to England. Some Foreign Money In N.Z. Banks But banks in New Zealand do keep a little foreign money — probably brought here by travellers, just as a Wellingtonian could pay a debt in Auckland by taking the money there in his pocket-book. Occasionally also some money gets posted from country to country. But dealing with our overseas financial transactions is mainly a matter of book-keeping-not a matter of physical transportation of money. How then have some people "sent their money out of the country" during the last year or so? They had money on deposit in the bank. They said-" We want money in Australia or England." The bank thereupon cancelled the deposit corresponding to the New Zealand value of the overseas money asked for, and placed overseas money at their disposal. All that happened was that the overseas funds of our banks were depleted by the amount asked for. It is clear that when people "send money out of the country" it is not sent out. What happens is that the New Zealand banks lose some of their overseas money.