COMMERCIAL Trading Restrictions Detailed By Bank

Press, Volume CVI, Issue 31144, 22 August 1966, Page 17

COMMERCIAL Trading Restrictions Detailed By Bank

The market for sterling area securities had become very sophisticated and wide ranging and the volume of transfers to New Zealand each year could be conservatively estimated at £2om a year, according to the latest Reserve Bank Bulletin.

Details of changes made by the 1966 Budget in procedures and in exchange control and other regulations are full discussed by the bank.

New measures were made necessary by the balance of payments situation. Too high a proportion of New Zealand’s overseas funds was in private hands and could be used freely for many purposes.

The withdrawal of this facility was effected by the Exchange Control Exemption Notice 1965, Amendment No. 2.

The bank says that because so many overseas receipts do not come into the country through official channels, official reserves are uncomfortably low, and extensive controls have to be imposed to protect them. Transactions New Zealanders had been able to get overseas funds through share transactions with other New Zealanders and transfers of funds to New Zealand were also made this way. Because of this a premium arose over the value of sterling area securities on overseas exchanges, varying accordingly to supply and demand. In 1964 the premium was as low as 3 per cent, but just before the latest Budget it had risen to 10 per cent. This rise in premium was partly because of diminution in supply because of the Overseas Remuneration Regulations 1964. There had also been increased demand because of higher incomes in New Zealand spilling over into demand for overseas, goods, services and investments. Sharebrokers, solicitors and accountants in New Zealand, Australia and the United Kingdom were aware of the premium available. Immigrants They would advise intending immigrants and other holders of sterling to transfer funds through the security market rather than through the banking system. The balance of payments deficit on invisible items had been accentuated.

While outward remittances for many such items are approved for payment from the official reserves, the only “invisible” receipt which had to be sold to the banking system was overseas remuneration for services in New Zealand for overseas residents. All other invisible receipts could either be retained overseas or transferred to New Zealand through a security transaction. This took in proceeds from the sale of overseas securities, interest and dividend on overseas securities, immigrants, funds and legacies. The banking system was used to only a moderate extent for such transfers because of the premium to be obtained on the security market. The bank’s bulletin points out that all sales of sterling securities in the free market in exchange for New Zealand currency represent the transfer of a New Zealander's overseas assets into New Zealand currency, but without benefit to the official reserves. In the present balance of payments situation it is essential that to the maximum possible extent all money transferred to New Zealand should be through the banking system for the benefit of the official reserves. As a step towards this new rules became effective from June 17. This means that people living in New Zealand can no longer sell overseas securities or currencies for New Zealand currency or other assets in New Zealand.