MONEY MARKET.

Press, Volume LVIII, Issue 17607, 9 November 1922, Page 8

MONEY MARKET.

MR H. BEAUCHAMP'S VIEWS.

DOMINION'S CREDIT GOOD,

(I'EESS association telegram.)

WELLINGTON, November S,

Mr Harold Beauchamp, formerly chairman of the Bank of New Zealand, who lias been absent from ollington for some months travelling in the United States and Great Britain, returned to-day. He spent a considerable part of his time in the city of Loudon, particularly in the financial quarter.

Questioned upon arrival, he Baid: International finance is unquestionably the most complex problem at the moment, and those competent to express an opinion agree almost unanimously that there will have to be a wiping off of the stupendous liabilities incurred by the nations engaged in the Great War, save, perhaps, Great Britain, before the financial equilibrium can be restored to anything approaching the pre-war level. Great Britain ia quite willing to forgivo the debts of France, Russia, Italy, and Belgium, amounting, roughly, to £1,700,000,000, provided the United States of Amorica would do the same, merely stipulating that America should give England time in which to discharge her obligations to that, country, totalling £850,000,000 odd. It has also been suggested that more liberal terms should be granted to Germany, but to that proposal Prance, fearing the rapid recrudescence of Germany, her ancient and implacable foe, has not lent a sympathetic car. Is that to be wondered at? "On many occasions both in New Zealand, Canada, the United States, and Groat Britain, I have expressed the opinion that if Great Britain undertakes to wipe out the debts due to her by France, Russia, Italy, and Belgium, the United States should accept in payment of Great Britain's liability to her of £850,000,000 bonds or de bentures to be created by Germany for a sum to be agreed upon by the parties concerned. If necessary, these bonds or debentures could be guaranteed by Great Britain and her European allies who so substantially would benefit by Great Britain's generosity. It is obvious that America, supported by force majeure, if necessary, would be in much the better position to collect the moneys payable under theße bonds or debentures than the European Powers individually or collectively. Speaking at one or two public gatherings just prior to my sailing) from England, the Governor of Ohio said he fully recognised how important it was for the United States to come to the rescue of Europe. Failing that, nothing but bankruptcy stares several European nations in the face. Austria, for example, is now standing on the brink of a financial abyss." Mr Beauchamp was asked to throw some light on the apparent anomaly of the higher rates of interest demanded by investors, and the low Bank of England rate of discount, 3 per cent., since July last. In reply, he pointed to the gradual fall in the bank rate from 6} per cent, in June, 1921, to 3 per cent, as at July 13th, 1922. "It" is gonerally concluded," he explained, "that these reductions from 6 per cent, on June 28rd, 1921> to 3 per cent, on July 13th, reflect tho laclc of confidence arising from the depression in trade. Of course this factor has played a great part m leading to the reductions in the bank rate from 7 per cent, ia 1920 to 3 per cent, to-day. -There is another element, however, in the matter, and that is the return from abnormal conditions created by the war and its after-effects to something approximating normal. There would not have been a 7 per cent, rate in 1920 had it not been for the fact that a huge over-trading position had been created which required a high rate of money to bring it into check. This overtrading has, of course, disappeared, and the effect is to be seen in the lower value of money and the reduced activity on the part of the banks. Lombard street's diminished rates are now reflected in the activities of Threadneedle street, and in the appreciation of Stock Exchange securities.'' Referring particularly to the low value of money in London, Mr Beauchamp said that the credit produced by Government expenditure was largely of a nature that could only be employed in a short form, hence the cheapness of money, which has since moderated owing t.o i the deflation which has taken place. The need of the Government to offer Treasury bills at 41 per cent, has prevented long-dated stocks from appreciating. In short, people are, unwilling to face risks or mortgage the future. They are living from hand to mouth, so to speak, and are glad of little. Those who venture hope for a big thing in time. Two main reasons account for the lower rates ruling for money, although' they have no.w hardened to some extent, namely, the repayment of Treasury bills and the lessening demand for trading purposes. Mr Beauchamp was asked to explain the rise in the prices of gilt-edged securities. He exhibited a table showing the price of selected securities aB they were on August 15tli, 1921, and how they had appreciated by August 15th, 1922. Among them may be mentioned the following rises:—lmperial Government, 5 per cent, war loan, 12 5-18 per cent.; conversion loan, 13| per cent.; funding loan, 17| per cent.; Victory bonds 18i per cent.; New 1 Zealand 4 per cent, loan, 9i per cent.; Canada 4 per cent, loan, 13|. per cent.; Queensland 4 per cent, loan, 14 per'cent. The great improvement in value, he said, fwas of course due to the reduction in the value of money, and the better terms which the Treasury had been able to make in its issue price for Treasury bills. These operations had all assisted the giltedged market, and it promised to make borrowing in future easier for well-secured issues.' Incidentally Mr Beauchamp remarked that tho credit of New Zealand, by comparison with other countries, stands very high, and on August 29th New Zealand 5 per cent, stock of 1933-45 was actually quoted 2 points higher than British war loan, 1929-47, which then stood at 100. . Discussing deflation and the prospects for money, Mr Beauchamp sa *d there was abundant evidence of the progress of deflation. It began with wages. Manufacturers and others, finding that they were unable to secure orders on inflated prices, had to shut down their works. They wero only reopened after substantial reductions in wages had been made. This severely reduced payments made week by week to the workers, and so currency notes were first to fee. the effect of the changed conditions, and circulations declined by ~ 6-j.000,-000. Then traders, by collecting their accounts, and' reducing stocks, secured funds whereby the banks were repaid a portion of 'their adv a nce9,andthese declined during 1921 by £100,000,000, and have fallen since. The banks rook up Treasury bills, and so kept heir- deposits intact. Then the Treasury issued large masses Oi. Treasury bonds, the proceeds of which •nabled a reduction of Treasury biU y over £460,000,000. Consequently

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banks lost deposit's, reducing their power to lend money. The market w " ero £°? e Ending its operations in excess °f ,ts resources. Leading joint stock banks are poorer by the deflaion, so they cannot give the market much money. The Treasury is proaous (at the mojpent) -with surplus it . evCnue ove r expenditure, so that "l? "i 0 n . ee< * to borrow of the Bank fnmp"n may, however, bepoorer, or it may desire to make nnii. c^| oa per, in which ease it has it "+v,o°-d i rOW on and means ■ Bank of England in order to pisp f/>^*v Cre ease to the money market. ■onUmL 18 w Pr ° Mr Beauchamp w,th half Europe in less i, I'm ' expansion in busi•v:th np ; moderate, aa<l stpaAiK 0S t EU Coß ta of production credit i the demand for credit is not likely to be great. .