EBB AND FLOW.

Auckland Star, Volume LXIX, Issue 278, 24 November 1938, Page 12

EBB AND FLOW.

OF LONDON FUNDS. "CAN GET AWAY WITH IT." DRASTIC STEPS NOT NEEDED. (By Telegraph.—Own Correspondent.) CHRISTCHURCH, this day. "We can get away with it again this time without taking drastic steps," said Professor A. H. Tocker, referring to the state of New Zealand's London funds during an address to the Economics Society. "I don't think the situation is nearly as desperate as eome people say. We have still got about £10,000,000 in London, and many times we have not had that. From November onward money comes in much more rapidly than it goes out."

Excess imports, some flight of capital, and a normal seasonal reduction in London caused the present situation, he •aid. Imports, always remained higher than the national income justified for a time after a fall in export income, but tended to right themselves rapidly. Flight of capital would probably be arrested by the normal process of rising interest rates, and capital could by that means be persuaded to return. London funds would build up agaih as the'flow of the country's exports reached the world markets. Lessons to Learn. "We will learn that we cannot consume more than we produce, and that if we create money we only depreciate the value of our money," said Professor Tocker, referring to lessons. to be learned' from the past few years. "Since May this year we have reduced our London funds from £28,100.000 to about £10,000,000. That ought to be a sharp lesson which it will be hoped the people will take to heart." London funds were tl.e real reserve of money of New Zealand. No figures were available for «the amount of overMas exchange held in 1934, but it was probably between £10,000,(MM) and £20,000,000. Between 1032 and 1935 the - funds built up abnormally to £46,000,000. The following . table gave exchange movements since May, 1935, an estimate of the total at London on November 14 ,being £10,000,000»— Overseas Fund* (tN.Z.m.) r Trading Res. Bank. Banks. Total. t935. May 22.8 r 23.8 48.8 Nov. J7.5 IT.I 34.6 1986, Mar 23.7 21.5 43.2 Nov 16.6 12.0 28.0 1937, May 22.3 1.1.1 37.4 Nov lfi.B 8.2 24.8 1088, May 18.3 U.B 28.1 Sept 11.4 2.8 17.0 Nor. 14 .. 5.7 — — The fall of about £18,000,000 in London funds from May, 1938, to the present time was accounted for to the extent of about £0,000,000 by excess imports, about £9,000,000 by the normal seaaonal variation fai the state of the funds, and about £3,000,000 by export of capital, although the last figure was a wide approximation. One vault of the present situation waa that interest rates would probably rise, attracting to New Zealand capital at present overseas, and counteracting the decline in J<ondon funds. The recent increase in the Reserve Bank discount rate might be taken as an indication by the authorities that interest rates generally should rise. When it first announced a discount rate, Reserve Bank made it plain that it was on, 7 * n indication of what it thought interest should be.