The Auckland Star WITH WHICH AND INCORPORATED The Evening News, Morning News, The Echo and The Sun. MONDAY, MAY 25, 1936. DOMINION'S LIQUID POSITION.

Auckland Star, Volume LXVII, Issue 122, 25 May 1936, Page 6

The Auckland Star WITH WHICH AND INCORPORATED The Evening News, Morning News, The Echo and The Sun.

MONDAY, MAY 25, 1936. DOMINION'S LIQUID POSITION.

For the cause that lacks assistance, For the \crong that needs resistance For the future in the distance, And the good that ice oan do.

New Zealand's banking position to-day presents a picture of exceptional liquidity. Overseas assets have shown a further growth, and the excess of trading bank deposits lias reached a new peak of £24/270,000, the highest figure in recent years. The movements of the exchange totals ait of particular interest. Six months ago the London assets of the trading banks were reduced sharply by transfers to the Reserve Bank, in anticipation of a possible reduction in the exchange rate during the autumn, but when a reduction began to appear unlikely the banks allowed their funds to accumulate again until at the date of the latest returns, four weeks ago, they held £.22,285,000 in London. The Reserve Bank at that time had £24,000,000, thus bringing the total on New Zealand account in London to over £46,000,000, to which must be added a further £6,305,000 held elsewhere overseas for exchange purposes —a total of £52,590,000. This is the result of exchange accumulations which have been going on, subject to seasonal fluctuations, for a little over three years.

A closer view, however, reveals that the greater part of this accumulation, occurred in the eighteen months between the raising of the exchange rate and the establishment of the Reserve Bank (in August, 1934). By comparison with that comparatively brief period, in which the total was raised to nearly £42,000,000, the subsequent increase appears moderate. Indeed, there have been times when it. was thought that the tendency to expand had been completely arrested, and, in fact, reversed. From May of last year until the summer improvement in prices for the Dominion's wool, meat and dairy produce, there was a continuous downward trend. At the same time imports were on a higher level, and this was undoubtedly a major factor in preventing a sudden large increase in the exchange funds over the past few months.

Given a further development of imports, which in the present exchange position of the Dominion the Government should do everything in its power to encourage, a gradual fall in the total of the London funds may be looked for in the near future. One of the needs to this end is.the opening up of more profitable avenues for the use of money in New Zealand. Until the opportunities for bank advances and the investment of private capital in the Dominion are much more numerous and attractive than they are to-day the banks will have no alternative to leaving their funds where they now are, mainly in London. The method of taxing banks in New Zealand operates to drive away their unemployed funds, and the only important lodging-place where these funds can be employed to earn some return during their absence is in London. Thus the London accumulation has a close connection with the level of bank deposits in the Dominion. While these variations in bank funds are occurring it is interesting to observe that there is a definite rise in the note issue, which indicates that more money is in the hands of the people and more cash is circulating in business.