EXCHANGE POOL.

Auckland Star, Volume LXII, Issue 305, 26 December 1931, Page 5

EXCHANGE POOL.

NEW ZEALAND'S ACTION.

AUSTRALIAN PRECEDENT.

PRIORITY OF GOVERNMENT NEEDS,

The action of the New Zealand Government in deciding to pool exchange credits is not without precedent. Australia has had a similar scheme in operation since July, 1930. An arrangement was entered into between the executive of the Loan Council and the Australian banks as the result of a conference in Sydney, by which the London credits were to be mobilised to facilitate the meeting of commitments of Australian Governments in the same way as the Dominion now proposes to meet its commitments out of the exchange pooL In announcing the inauguration of tho scheme, the Prime Ministeii of Australia, Mr. J. H. Scullin, said: — "In the past the Governments of Australia have had an overseas borrowing policy, by which they have used loan moneys for meeting interest obligations abroad, and equivalent amounts of revenue money have been applied to meet loan expenditure in Australia. By this means the transfer to Australia of funds borrowed overseas has been made effective.

"The position, however, has latterly arisen that with the cessation of Gov-ernment--borrowing overseas money now must be transferred from Australia to London to meet 'accruing obligations. Owing to the adverse balance arising from the excess of imports over exports it has not been possible to provide in London the necessary funds to meet the obligations of the Governments, in London.

"When this became evident, various measures were adopted to rectify the position, but recently it became-evident that some co-ordinated plan would have to be provided. To this end negotiations have been proceeding for some time between the Loan Council,'the Commonwealth Bank, and the trading banks, for the purpose of so mobilising London exchange- as .to provide for the obligations of Governments in London.

"Under this plan the Governments will have first call upon the available funds in the hands of the banks in London. A tentative arrangement has been made which will accomplish the objectives mentioned."

The essence of the plan presented by the bankers to the executive committee of the Loan Council was that Australia had to meet her obligations abroad, national and private, from the proceeds of her exports. In other words, she proposed, for the first time, systematically to pay her way.

"The proposal m:.y be illustrated by supposing that the credits arising from exports amount to £90,000,000," said " The Argus," Melbourne, at the time. "The banks propose that the exchange shall be provided to cover the Government's commitments oversea — say, i £30,000,000. The balance of £60,000,000, and no more, will then be available from which to pay for imports and for other purposes, it is understood that Government requirements will be earmarked on a proportionate basis for each bank according to its contribution to the pool. When the proposals have been approved by the Loan Council there will no doubt be a favourable reaction on Australia's credit abroad. • There will probably be a considerable improvement in the prices of Australian Government securities, and consequently a much brighter prospect for the funding of the Australian overdraft in London."