EXCHANGE RATES

Dominion, Volume 24, Issue 226, 20 June 1931, Page 8

EXCHANGE RATES

No Reduction in Close Sight

POSITION OF THE BANKS

Dealing with the question of the exchanges in his speech at the annual meeting of the Bank of New Zealand yesterday, the chairman, Mr. 'W. Watson, said the present rates of exchange between London and New Zealand and vice versa were abnormally high, and there was no 'reduction in close sight.

The principal factor in advancing rates from time to time bad been the necessity for bringing about a reduction in imports to correspond in some measure with the reduced value of exports. To a considerable extent this result had been attained, but London reserves, which had been heavily depleted, must be built up before reduction of rates could be looked for. Further, it was by no means certain that for the present year the balance of trade would be in the Dominion's favour to anything like an adequate amount. Were it not that the banks held funds on a large scale in London, the rise in exchange would have taken place sooner than it did and been heavier. “We have resolutely refused to permit our New Zealand funds in London to be availed of for the benefit of Australia,” he said, “but, unfortunately, the banks do not control the exchange position, consequently through channels outside the banks Australians have secured possession of an appreciable amount ot New Zealand funds in London.” A large section of the public did hot appear to recognise that while the margin between buying anti selling rates remained unaltered, the banks derived no advantage either from a high buying or a high selling rate. As d matter of fact, it was almost certain that during the period of adjustment to normality the banks must lose money on their exchange transactions. The position of Australian exchange was also abnormal, and until conditions in the Comnftmwealth substantially improved there' was little or no hope of alteration. Complaints had been made by New* Zealand exporters to Australia that the exchange rate was seriously restricting trade. That no doubt was the case. On the other hand, the Bank of New Zealand had funds in Australia far in excess of its requirements —an excess which in present conditions it was impossible to shift. In fact, it would suit them to stop buyitig any exchange on Australia for a long time to come.. ■ It was well to emphasise that it was the producing, and also the manufacturing, industries of the Dominion, and not the banks, that were reaping the advantage of the present abnormal exchange rates on London.