OVERSEAS FUNDS DECLINE

Press, Volume LXXV, Issue 22769, 22 July 1939, Page 16

OVERSEAS FUNDS DECLINE

DROP OVER WHOLE BANKING SYSTEM RESERVE BANK REPORT REFERENCE TO PROMISE BY MR NASH [Prom Our Reporter.] WELLINGTON, July 21. “In view of the relationship between internal credit expansion and the demand for overseas funds, the connexion between a total Increase of more than £14,000,000 in the accommodation granted by the Reserve Bank to the Government and the loss of overseas funds which occurred during the year is significant,” states the annual report of the directors of the Reserve Bank for the year ended March 31, 1939. Dealing with the overseas funds of both the Reserve Bank and the trading banks, the report 'states that thf combined net overseas assets of the whole banking system, in respect of New Zealand business, declined by £17,203,000 (New Zealand currency) during the year. The report adds that the introduction of exchange control directly concerned the bank, first by the suspension of its obligation to redeem notes in sterling, and, second, by the bank's statutory duly to regulate and control the transfer of moneys to or from New Zealand, and the disposal of moneys that are derived from the sale of any New Zealand products, and for the time being are held overseas. In operating: the permit system for transfers, the bank has been guided by the assurance of the Minister for Finance that one of the objects of exchange control was to enable the overseas debt, whether Government, local body, or private, to be met on the due date.

"It is estimated,” the report adds, “that the normal requirement for Government and local body debt service overseas and for net adverse balance of other financial transactions, including travellers’ requirements, amount to nearly £12,000,000 (New Zealand currency) annually. As revealed by the external trade statistics, however, the surplus of exports over imports for the year had fallen to £3,459,000 only. “Moreover, owing to the state of the market for New Zealand local body loans In London, it became necessary to repay several of those sterling loans which fell due during the year. Thus, while the decline in the favourable balance of external trade appears to have accounted for about one-half of the shrinkage in net overseas funds, it is evident that there was an abnormal net overflow of capital after allowing for local body debt repayments.”

HIGHER NET PROFIT

RESERVE BANK’S YEAR “INFLATIONARY TREND” OP DAIRY FUND DEFICITS WELLINGTON, July 21. A net profit of £230,285 10s 4d is shown in the annual report of the Reserve Bank for the year ended March 31 last. The report, which was presented to Parliament to-day, states that this amount has since been paid to the Consolidated Fund in conformity with the amendment made to the Reserve Bank Act, 1936, “no request having been made for any payment in advance, in accordance with the provisions of section 11 of the Finance Act, 1934.” “In spite of an increase of 20 per cent, in ■ expenses, occasioned mainly by larger supplies of bank notes and additions to staff and to office accommodation, consequent upon the expansion of note issue and the introduction of exchange control, as well as by normal increases in salaries, profit again showed a substantial advance on the amount realised in previous years. The principal factors responsible for the larger profit,” the report adds, "were an increase in the return from advances to the State, additions to the holding of investments, find heavier sales of sterling. “While net sales of sterling yield an immediate exchange profit, they do so at the expense of the future earning power of the bank’s sterling assets,” the report adds. The report further states that sterling exchange eligible as reserve for notes in circulation and other demand liabilities decreased during the year by the equivalent of £11,872,002 in New Zealand currency. This decrease was due mainly to the fact that the bank’s sales of sterling to the trading banks greatly exceeded the surplus available from the proceeds of the sale of dairy produce in London, after providing for the Government’s sterling requirements. In addition, there were considerable sales of sterling to the public before the suspension on December 7, 1938, of the bank’s obligation to give sterling in exchange for its notes. “Repayments during March to the Dairy Industry Account included a sum of £276,850 transferred from the Consolidated Fund in repayment of a deficit incurred in respect of the operation of the account for the year ended July 31, 1937. There appears to be every prospect,” the report adds, “of a substantial deficit for the current production year. “To the extent that such deficits ex-, ist they represent a creation of credit beyond the equivalent of the commodities produced, and the board con-, siders it important that the inflationary tendency of such accommodation should not be overlooked."