LONDON MONEY MARKET.

Auckland Star, Volume LVI, Issue 191, 14 August 1925, Page 4

LONDON MONEY MARKET.

REDUCED DISCOUNT BATE. INTERNATIONAL PROSPECTS. The reduction of the Bank of England discount rate from five per cent to four and half per cent was apparently unexpected in banking and financial circles iii Lonr don, but was nevertheless welcome, and incidentally it may be said that the reduction is a tribute to the foresight of those who »advised the Goverment to restore the gold standard. • The 5 per cent j-atc was imposed on March 5 last, ! following upon an advance made by the Federal Reserve Bank of New York iv its minimum discount rate. The present reduction in the Bank of England rate lias been made possible by the inflow of gold, the net addition to the bank's stock of the yellow metal since the gold standard was restored on April 28 is stated at £8,651,000. It will be noted that the reduction is only 10/ per cent, but this is in accordance with the general practice of the bank. The rule is to raise the rato by one per cent, except in times of financial stress, when no rules are observed, and to reduce the rate 10/ per cent. The traditional minimum discount rate is two per cent and that rate held for about twenty-six months in It is probable that the Federal Reserve Bank of New York will respond with a consequent reduction in its discount rate. If so, we may expect to see the Bank of England rate further reduced to four per cent presently, and that rate is likely to be the minimum for some time to come. It must be borne in mind that at this time of the year Europe has to make considerable purchases of wheat and cotton in America, but as the United States has been granting credits to European States the financing of the purchases of cotton and cereals should not involve any serious disturbance of the London money market. The reduction in the discount rate, which means the cheapening of money, for it will regulate the operations of the big joint stock banks, whose rates for deposits and advances will be reduced, must have a stimulating effect on trade and industry, and the psychological effect must not be overlooked. The reduction will tend to create optimism, and increase the confidence that is essential for the development and progress of trade. If financial affairs move smoothly, as they give i indications of doing, and France funds her debt to Britain, the Chancellor of the Exchequer should be able to further reduce taxation next year. Tho French Government is desirous of raising a substantial loan in the United States, but tho Washington Government has intimated that fresh loans must be preceded by a finding of the existing debt, and France cannot very well square accounts with the United States and overlook Britain, vlt is for this reason that round table discussions have taken place between the French and British Treasury officials, but the French view appeared to be that Britain would be glad to take any small amount in settlement. The French have had this idea knocked out, and their plea of poverty cannot be sustained. Lord Bradbury, who,i as the permanent representative of Great Britain on the Reparations Commission in Paris, must be regarded as having a peculiar authority, for he has had o_Tportunities of gaining information and? experience such" as no other British financial expert has enjoyed, in an address to the Commerical Committee of the House of Commons, stated that France,! without undue depreciation of her standard of living, ahd without reference to any payment which she may receive from Germany, under the Dawes scheme, is capable of making to England and America an annual - payment of between forty and fifty million pounds sterling. Thus, in insisting that France should pay £20,000,000 annually, Britain is acting with commendable generosity. If this sum is secured from France, it would greatly relieve Britain in respect! to her annnual payments to the United States. Italy, too, has yet to face the problem of debt funding, but Italian finance is in a parlous condition, and her contributions are likely to be comparatively small.