OVERSEAS CREDIT

Dominion, Volume 25, Issue 223, 16 June 1932, Page 6

OVERSEAS CREDIT

Abolition of the Pool REASONS FOR MOVE Prime Minister’s Review BANKS AND EXCHANGES “I have said all along that as Boon as the Government requirements were met, and there' was no further need for the exchange credits pool, the export license restrictions would be lifted,” said the Prime Minister, Rt. Hon.. G. W. Forbes, in an interview on his return to Wellington from the South yesterday. “As the Government’s needs have been met, and as provision has been made for overseas commitments, the pool will be abolished at the end of this month.” In discussing the steps taken .last December to provide for adequate overseas credits to meet the Dominion’s obligations abroad, the Prime Minister said he was quite satisfied the exchange pool had been justified. The times were extraordinary, and the Government could not afford to default in its payments for such an event would seriously impair the country’s credit As things were last December, the Government had to devise some plan to ensure that It would be able to meet its commitments, and the establishment of the exchange credits pool was undertaken with the co-operation of the banks on the understanding that the pool should be done away with as soon as It was no longer an absolute necessity. Estimates of Needs. At the time the pool was established it had been estimated the Government would require £12,000,000 at the rate of £1,000,000 a month. In addition to this it was considered that local bodies would require about £2,000,000, although this sum had not been closely determined. Ordinarily, therefore, the Government would have had to rely on the pool for a year, and its abolition would not have been effected until next December or early in January. Explaining the reason for the abolition of the pool at the end of six months, Mr. Forbes said the raising of the recent £5,000,000 loan airil the disposal of certain Government securities | in London had eased the position considerably. It was originally anticipated that use would have to be made of the pool in order to meet Treasury bills amounting to £4,000,000 which were falling due. These, however, had been funded, and the disposal of the securities, in addition, had meant that the Government needed only about £6,000,000, or half the original estimate, from the exchange credits accumulation. Gutlook for Future. Asked what the position was concerning the future, the Prime Minister said the Government should have no difficulty In meeting commitments overseas in the normal manner. There had been a marked improvement in the balance of trade, and this would assist considerably. Mention was made of the exchange rate problem, but Mr. Forbes reiterated his previous statements that the Government was not concerned In fixing the rate in any way whatever. He said the question was one for the banks. It had been repeatedly stated that the Government was controlling the rate, but this was entirely incorrect. All it had done on the establishment of the exchange credits pool was to make perfectly certain that it would be in a position to meet its commitments, and beyond this it had no other interest. It was believed in some quarters that once the pool was abolished the rate of exchange would start to fluctuate immediately. There was no justification for this assumption, for as far as the Government was concerned the pool had nothing to do with the rate. The banks would no doubt decide whether the present rate was a correct one, but the mere removal of the pool did not mean that there should be a simultaneous change in the exchange rate. Banks and tlie Rate. The point was made by Mr. Forbes that the level of the exchange rate was one for the Associated Banks under their present arrangement. When asked what would be the position if one bank decided to adopt a rate which the other banks did not favour, he stud the bank that broke away would have to be prepared to stand by the rate it fixed, and it was not to be expected that such a serious move would be made without giving full consideration to the implications it might involve.

In the same manner, if the Government were to take upon itself the responsibility of fixing the rate, it would have to provide Itself with sufficient reserves to maintain that rate, much in the same manner as Great Britain had established the fund of £150,000.000 to bring about the stabilisation of sterling. At that moment it did not seem as though the New Zealand Government could command millions of pounds for the purpose. NEW ZEALAND POUND London Banking Opinions By Telegraph—Press Assn.—Copyright London, June 14. Tlie “Evening Standard’s” city correspondent says that London banking circles predict failure for the attempt to reduce the value of the New Zealand pound.