THE CONVERSION LOAN.

Press, Volume LXV, Issue 19786, 26 November 1929, Page 12

THE CONVERSION LOAN.

FAR-SIGHTED POLICY. NEW ZEALAND WELL SERVED. (rsost our owir coasL*sroKDK.vr ; LONDON,' October 18. New Zealand may congratulate itself that it is 'well served bv its financial advisers in London. More than a rear ago they seemed to have been aware that bad times were coming, and their advice to the Reform Government to clear their decks of rew money loans and get on with the conversion of tho £29,000.000 falling due on November Ist, 1929, was supremely wise. How wise may be seen dv the result of the latest £5,000,000 conversion loan. It is not often that a New Zealand loan hangs lire, and it is very seldom that the full period allotted for applications for New Zealand stock is needed. However, as already reported about £1,500.000 of the £5,000.000 offered was left in the hands of the underwriters. It is natural, therefore, that those in financial circles should lie congratulating the Dominion on its narrow escape. It would have been absolutely impossible to have offered the full sum for conversion at any time during the last few months, and the issue of new stocks for paying off the old would have been a most costly undertaking. The whole business have had a most deleterious effect upon the credit of the Dominion. The Government, which decided to get in earlv with the conversions and to leave this year clear of new moneyloans did an inestimable service to the Dominion. Primarily, of course, the London financial advisers should have the credit, as no one in New Zealand itself can be expected to know the situation or prospective situation at this end. America's Wealth. America's wealth has been the chief cause of England's troubles. The New York Federal Reserve sank makes some attempts to control the rate of interest on foans, but the 80,000 banks in the United States do not by any means belong to the Federal Reserve system. The open market rate has been as high as 20 per cent. There has been plenty of money, speculation has boen rife in the States, and borrowers seem to have been content to pay these enormous rates for accommodation. Even recently the open rate was 10 per cent. No wonder the gold of this country has been taking flight. With the exchange against us (say at 4.84 as compared with parity 4.86 2-3), it was even a profitable thing to buy gold and ship it to the States where one could always get 4.86 2-3 dollars for tho pound. Although the French bank rate is 3J per cent., it has to be remembered that that is only nominal. If a man wants accommodation from the bank he has to pay 7 per cent. That lias been the open rate in Paris, which has attracted large quantities of gold. Again, four years ago, when the franc was fluctuating, there was what was called "the flight from the franc." People bought dollars and sterling with their francs and set up large credits in New York or London. Recently, the French holders have been realising their sterling credits, converting them to gold, and shipping it back to France. "Hie time came when London could hold out no longer. It must save the gold on which the gold standard is based. The raising of the Bank rate to 6J per cent, (as compared with the 6 per cent, of the New York Federal Reserve Bank) has had an immediate and remarkable effect. Weak holders on the New York Exchange are selling out, and the market rate lias fallen. Exchange has come up to parity and this means that the shipments of gold from South Africa can be bought up by the Bank of England without fear of competition from American bnyers. Last week the Bank secured £900,000 worth of gold. The raising of the Bank rate was a drastic step. but obviously it is having the desired effect.