THE BANK RATE.

Auckland Star, Volume XLVII, Issue 168, 15 July 1916, Page 4

THE BANK RATE.

Having , bejjome accustomed to a bank rate of five per cent, London is. naturally surprised at the sudden rise to six per cent, the first change since the first week of the war. Owing to the sharp rise in money in New York] the Bank of England lias had to protect its gold reserves by ■ raising the rate. The French are Jloating a loan of twenty millions sterling in 2»ew York, the Russians were re- - cently reported to be going to the same market, and Canada has raised money there. This loan activity, \vith what is described in our cable news as "the expansion of trade activity," is held to account for fue rise in the value of money. But this rise was fore-., seen in America. " Although money continues in abundance at the financial centres of the United States and throughout the -country as well, there is increasing belief that rates are certain to advance before long," said an American paper early in June. "That the increase will: come with the ending of the war is generally conceded. An indication of the approaching rise is seen in the steady encroachment that has been made upon the surplus reserve of Xew York clearing house institutions. That the Increase in rates will be a welcomed event at the banks goes -without saying. The longcontinued plethora of funds has been one oL the surprising developments since the war began. It had been generally predicted that long before ' this money would be in urgent demand, and ratee accordingly would vigorously ascend. All sorts of good reasons were advanced for this, but rates continued low because the banks have been overflowing with money." About the same time the London "Bankers' Magazine" was admitting that the gold question had not followed bankers' theories, for London, with a high interest rate, was apparently unable to attract more than a moderate amount of gold, while America, with comparatively low rates ruling, was getting more than she wanted. But what is described in our calile news as "expansion of trade activity" is probably the aftermath of great speculation, or at any rate this aftermath is one of the factors- in the situation. The. huge demands of the Allies created a great trade boom in America, which led to speculation. Those who have follotved the question know how high the stocks of American ' munition worts soared. The heavy influx of gold raised prices, and this helped to raise, 6tocks. But with the 'Allies becoming , independent, and their combined offensive, pointing the way clearly to victory, the American trade boom is threatened. Speculators want something more eub-' stantial than credit to cover their obligations, and so go to the banks -for gold. Instead of being a result "of trade activity the rise in interest in New York may be the first sigh of a trade collapse.