London Funds

Dominion, Volume 27, Issue 189, 9 May 1934, Page 11

London Funds

Sir, —“Equity’s” further letter regarding London funds still reveals on his part some misconception of the real nature of the transactions. He. originally suggested that through the banks’ action in financing the export trade some form of inflation had occurred. I thereupon pointed out that no inflation had taken place from the strictly banking point of view, but merely a change in situ of the banks’ resources. The fact that the banks were unable to dispose of their London funds in the usual manner has, indeed, brought about a form of inflation due to a paucity of goods, but the banks are in no wise responsible for it. That the Minister of Finance has recently stated that, the temporary redemption of surplus London funds by 5 per cent. Treasury Bills is to be substituted by a permanent settlement in the newlyestablished Reserve Bank's note currency is no matter for complacency, as “Equity” appears to think, but gives rise to feelings of deepest concern. What the banks are to do with the enormous increase of note currency, amounting, with the gold payments, to some £30.000.000, or an additional 500 per cent., is difficult to say. Any attempt to force this huge total into circulation can only result in financial chaos. And yet, to assure themselves of some return of their outlay, the banks must either buy property and other securities, thus starting another speculative boom, or must immure in their vaults the surplus currency, which then becomes so much waste paper and involves them in a huge loss. There are worse things than the paying of legitimate interest, as, unfortunately, we are soon to experience, if Mr. Coates’s statement is to be taken literally. Supposing the banks had refused to finance the export trade, forcing exporters to fend for themselves, the resultant worry, delay and loss would far outweigh the moderate charges imposed by the banks for their services. “Equity” concluded his reply by misunderstanding my plain and truthful statement that “our interests are served by excess of imports over exports.” This he construes to mean more borrowing for interest payments. I was not questioning our undoubted obligation to meet our debt requirements, but. merely drew attention to the false theory, that of itself an excess of exports over imports was desirable. On this absurd belief, Britain, which has for decades past received hundreds of millions of pounds worth of excess imports, should be ruined beyond redemption. That which is borrowed must be repaid, but it is nevertheless true that what wealth comes into a country enriches it; and what wealth is sent out of a country impoverishes it. This is but. another way of saying we should sell in the dearest and buy in the cheapest markets. Were this policy adopted we would soon be out of our troubles.—l am, etc., R. A. GOSSE. Northland. May 5.