BANKS' EDICT.

Auckland Star, Volume LXX, Issue 90, 18 April 1939, Page 9

BANKS' EDICT.

OVERSEAS FUNDS.

LETTERS OF CREDIT.

LIMITED TO FORTNIGHT.

"DRASTIC," SAT

Information ha* been received by leading merchants in Auckland that an instruction, curtailing the currency o{ overseas letters of credit, has been issued by the Associated Banks to the trading banks in Xew Zealand. It i* stated that, owing to the position of the sterling fund*, letters of credit will lie available for only a fortnight, and thai they will be issued by the banks only against imports ordered under liccn.-c and actually awaiting shipment.

Explaining the effect of the instruction, a bank representative eaid Hip change from the present arrangement was in the imposing of a limitation of a fortnight. It had been the regular

practice, since the import control regulation* came into force early in December, to require that the goods were actually ready for shipment, before letters of credit were issued. Only in most exceptional circumstances \rae a credit provided during the manufacturing stage. Minister's Assurance? "It is a drastic move." said one merchant this morning. "We felt that w* had an assurance from the Minister of Finance which would enable us to pay for all goods licensed, and ordered iii accordance with the regulations, but now we are not sure where we stand."* He recalled lhat at the conference of importers held in Wellington in January the Hon. W. Xash was a«ked the following question: "Does the Government automatically guarantee sterling funds to the full value of the permite iesued 1~ The Minister's reply was "Yes and no." and lie added: "The whole object of the licensing system, at the moment, is to ensure the conservation of sterling funds, and also to ensure, as far a« J-* humanly practicable, that the sterling funds are there to pay for the imports when they are brought in: hut to say that we guarantee the sterling funds immediately the license is issued, is impracticable. We are issuing licenses t<> the maximum extent, after we discover vyliat we think will be available in sterling funds in London for imports. There have been licenses issued already for many millions of pounds in excess of the actual funds we have in London "today, but I think importers will be prettv safe in assuming that, under the liceii sing procedure, the money required to pay for the goods will be available without a guarantee." Shipping From England. The Minister's statement was. interpreted by importers as meaning that th.» Government would limit the licenses t» the amount of funds expected to he available as the geods were shipped, and business contracts were entered into on the understanding that there would be no further difficulty in regard to «nod« licensed and ordered for the current half-year. It was explained by another merchant that goods now licensed must reach Xe\r Zealand before the end of Jun«, with the exception of those in a few' ships due in the Dominion early in Juiv. They would, therefore, have to be shipped from England by the middle of May. Only a small number of special classes of goods licensed for the second half-year woidd be exempt from this limitation. Banking Authority's View. The view taken by a banking authority closely associated with the financing of the import trade was that the new move would not cause eerioue embarrassment. The majority of New Zealand importers had their regular agents in various parts of the world, he said, through whom advice was received when goods were ready to be shipped. They then went to their banks and arranged for letters of credit. The amount involved was usually made available by cable and paid over when the overseas agent or shipper produced to the banks the shipping documents.

One suggested explanation of the move was that it was due to the disturbed international situation, and that the banks were unprepared, in the present circumstances, to continue to make letters of credit available up to the normal period of six months.

The tightening up of control is, however, more generally attributed to the failure of Xew Zealand's London funds to show any substantial improvement during the peak of the export season. There is much concern among merchants that the position may involve a still heavier cut in imports when general licenses are issued by the Customs Department for the second half of tbe year.