FINANCE AND WAR

Evening Post, Volume LXXXVIII, Issue 141, 11 December 1914, Page 10

FINANCE AND WAR

AS A BANKER SEES THEM NEW ZEALAND'S PROMPT ACTION A COMPREHENSIVE REVIEW. The Chairman, of the Bank of NewZealand (Mr. Harold Beauchamp), in addressing shareholder* to-day, referred particularly to the war. His remarks relating to its influence Oil New Zealand generally, and also how it had affected the bank in London and the Dominion in particular, are act out elsewhere in thift issue. Immediately upon its becoming known that the- Mother Country was involved in the struggle, the New Zealand Government, with commendable promptitude, he eaid, took the special steps which became necessary to protect the financial situation in the Dominion. A Bill enabling bank notes to be proclaimed legal tender was passed through Parliament, and a proclamation issued making bank notes legal tender on and after 6th August last. "The proclamation has been renewed," Mr. Beauchamp said, " and it will no doubt be found desirable to keep it in force until the war is over. The object is not bo much to provide currency facilities as to enable the banks to protect the gold reserves of the Dominion. The Government further assisted in this direction by legislation prohibiting ail export of gold, except such as is specially sanctioned by the Minister of Finance. The legal tender note proclamation has resulted in an increase in onr note circulation by roughly half a million pounds. The increase is, however, no gain to the bank, but rather the reverse. We have to 'hold gold or Government securities against every note issued, while at the same time we pay taxation to the Government on the circulation at the rate of 3 per cent, per annum. To this has to be added the cost of printing the notes and of administering the note department of the bank, which makes the total cost of our note issue i-% to 4^ per cent, per annum. NO MORATORIUM HERE. "It was not found necessary to proclaim a. moratorium here such as was required in the United Kingdom. All that was needed was a provision for the protection of mortgagors, and of purchasers under 'Agreements for sale and purchase' with instalment* of purchase money falling due. This provision was made by the Mortgages Extension Act, which prevents realisation by mortgagees or vendors under powers of sale contained in securities, except with the sanction of the Supreme Court. "In London, the position was of course different. It was, as a matter of fact, very serious — far more serious than we at this distance, and in our circumstances, can possibly conceive. All the delicate financial machinery daily in operation there was thrown suddenly out of gear : the complex monetary organism whose vitality centralises in London was for the moment paralysed. DAYS OF CONFUSION. For a few days all was confusion. With the Bank rate at 10 per cent, the money market was dead ; the banks were temporarily closed— the statutory bank holiday on t"he 3rd August having been extended over the 4th, sth,, and 6th idem ; trade, slapping, and commerce, all at a standstill : the British Government, bankers, and financiers conferring as to the best "means of meeting a, crisis quite unprecedented in the history of the world. A moratorium was proclaimed, and, to assist in conserving the gold reserves of the country, Government Treasury notes for £1 and 10s each were authorised to be made legal tender. Postal notes were also made legal tender. The banks were supplied with note 3by the British Treasury, paying to the •Treasury for the accommodation a tax equal to the Bank of England rate during the time that the notes are used. The banks reopened on 7th August, but were unable to immediately resume discounting or the buying of bills of exchange. " A MEASURE OF RELIEF. "Then a measure of relief came. It was announced on 13th August that the Bank of England would give assistance under the guarantee of the British Government, by discounting approved bill* of exchange accepted prior to 4th August, 1914 {i.e., approved pre-moratorium bills), without recourse to the holder. Thereupon a rush to the Bank of England with bills for discount set in, prompted by a desire not only to obtain the financial accommodation required, but also to get rid of all liability on the paii of the holders of the bills. For a time it was i a physical impossibility for the Bank to j deal with the whole of the bills pre- j sented daily. But gradually the mass of business was disposed of. The streams of finance began to flow again in their actnstomed channels, though in greatly reauced volume. Business began to assume again a more norma l aspect, and national credit was in a large measure restored. "The Bank of England return as at i sth August disclosed the extent to which its resources had been encroached upon in the early days of the crisis. The reserve, which at 22nd July stood at £29,297,051, showing a proportion to liabilities of 52 per cent., had shrunk at sth August to the dangerously low figure of £9,966,649 showing a proportion to liabilities of only 15 per cent. At the commencement of Angußt, the suspension of the Bank Act had been openly talked of as a probable contingency ; 'but the measures adopted to strengthen the position promised to prove effective, and resort to that extremity was unnecessary. The Bank rate, which had been raised from 3 per cent, to 4 per cent, on 30th July, and further increased to 8 per cent, on 31st July and to 10 per cent, on Ist August, was, on the resumption of business after the enforced holiday, reduced to 6 per cent., and od Bth August to 5 per cent., at which rate it still stands. The cordial support accorded to the Bank of England haß been one of the most noticeable features of the crisis from a banker's standpoint. The E*nk return published on 26th November shows that the Bank's deposits at 25th idem amounted to £175,154.000; and its reserve to £55,358,000, showing a proportion to liabilities of 31.60 per cent. SELFISHNESS OF HOARDING. The Chancellor of the Exchequer, speaking in the British House of Commons of the importance to the nation of preserving a strong financial position by conservation of the gold reserves of the country, made use of these memorable words :— "I think it is vital that it should be made clear to any individual and to the nation at large that any man who at the present juncture selfishly hoards gold is inflicting a great injury on the nation. In this tremendous struggle, finance is going to play a great part.' It will be one of the most formidable weapons in this exhausting war, and anyone who. for selfish motives of greed or thiough excessive caution and cow ardice. goes out of his way to attempt to withdraw sums of gold and to appropriate them to his own use — let it be clearly understood that he is assisting the enemies oi his native land, and he is assisting them more effectively probably Mian if he were to take up arms.' The warning hns, I think, not been lost upon the British nation. Specie j payments were never, at any period of the crisis, suspended, and there is no j

reason to apprehend that hoarding of gold, to any appreciable extent, has taken place. The British public has fveelv placed resources at the disposal o£ the feank of England, and the national financial position has thereby been greatly strengthened. "Owing to the disastrous drop in the price* of all securities, it -was found necessary to close the London Stock Exchange. " The American and Colonial Exchanges and the Continental Bourses also closed. Some have since reopened, but the London Stock Exchange still remains closed. Consequently, dealings in stocks a«d shares were, and are, practically at a standstill. THE LONDON STOCK EXCHANGE. "The British Government, however, having, through the medium of the Bank of England, relieved the situation by the discount of mercantile bills, has now turned its attention also to the assistance of lenders upon Stock Exchange securities; and, with a view to avoiding the necessity for realisation of securities on a large scale, has agreed to make advances to certain classe* of lenders to enable them to continue their loans on such securities until the end of the war. In consideration""; of lenders agreeing not to press for payment of loans on Stock Exchange securities, or to require deposit of further margins to cover, for one year after the conclusion of the war, the Bank- of England will advance to the lenders to the extent of 60 per cent, of the value of the securities held for any advance. Interest to be at the rate of'l per cent, above the Bank of England rate, -with a minimum of 5 per cent. This arrangement will no doubt afford a. further large measure of relief to bankers and others who may have advances current upon such securities. " Too much stress cannot be placed upon the magnificent service rendered in the relief of the position by the British Government. It faced the crisis in a courageous and statesmanlike manner, and with prompt and firm determination threw the whole strength of the country's resources and credit to the support of its finance. The deadlock was in that way quickly ended. Aa a consequence of what the Government did, and is- doing, trade in Britain is again active, and unemployment and distress are at a minimum — much below even what the most sanguine optimist would have regarded as possible in so short a space of time and in the face of such adverse conditions. " THE WAR DRAGS ON " " Meantime the war drags its weary length along. As to the outcome of it, all of us, of course, have only one hope and one belief — namely, that the cause of right and freedom in which our Empire has taken up arms will, nay must, in the end triumph. The solidarity displayed by every portion of the Empire in such a, grave crisis has been at once an inspiration and a source of confidence. In the face of the common I enemy, political differences and internal dissensions have disappeared, and the whole Empire is now united as it never was before. " That that conclusion may soon. bo reached is the fervent wish of us all, and that as the result of this stupendous loss of life and treasure there may come the growth of a saner and happier international sentiment which shall decree that, in this twentieth century of Christian civilisation, there shall be no recrudescence of such military and naval development on the part, of any Tiation as shall place the peace of the world again in jeopardy. THE UNSUSPECTING BRITISHER. " The British Empire's present experience is fraught with an important economic lesson for ourselves and for every other component part of the Empire. The most cursory reflection will serve to show that the bloated and hypertrophied military system of Germany, which has for years been the menace of the civilised world, has drawn the means of its sustenance and development largely from the British- Empire itself. The ports of this Empire the world over have been freely open to German merchandise; th» unsuspecting Britisher has traded with the German, and British money has found its way into- the German Exchequer and helped in the construction of [ the hug© fighting machine which this Uerman war oligarchs have now' turned against us in a mighty effort' to bring about our Empire's destruction. I " This is, I think, at the moment generally well recognised The feeling is 1 expressing itself in. the prevailihg prejudice against German goods and all things German. But people have short memories; and when the present i struggle, and the racial animosities that it has evoked, have passed into | history, there is a danger that this important point may be lost sight of, and that we may fall back I again into the old groove and be found engaging again in the foolish business of nourishing the enemy that has injured us. The remedy for this is to turn our attention promptly and resolutely to the development of trade within the Empire, and in that way assist and benefit our own kith and kin. Let both the State and the individual, in every quarter of the Empire, seek thus to encourage the growth of the Empire's own industries and commerce. Ldt us, as far as possible, buy in the Empire's markets, so that no alien and hostile race shall ever again enrich itself at our expense, and develop its baleful strength as in this case, through our folly. The change thus necessitated in our methods of obtaining supplies of manufactured articles to meet our requirements may afford opportunities for the establishment and encouragement of new local industries in the Dominion, by which our own people may be benefited. Any such movement, if based upon sound economic principles, should commend itself to our sympathy and support. GERMANY'S FINANCIAL PROBLEMS. "It is impossible to arrive at any trustworthy conclusion with regard to the duration of the present momentous aruggle. When experts differ, it would be presumptuous for a tyro to attempt to prophesy But I may observe, in passing that if the supply of soldiers were the only consideration, doubtless Germany would be able to prolong the v war for »n indefinite period. I cannot, however, lielp thinking that the huge economic and financial difficulties, which Germany must shortly have to face, will prove a very important factor in determining. the duration of the war. Financially and economically she and her ally have, for some time, been practically isolated from the rest of the world. Her commerce is dead, her industries are at a standstill, and the enormous amount of capital in both commerce and industries is totally unproductive. The economic waste from this source alone must be something appalling. But when we add to this the cost of the maintenance of her immense armies in the field — the pay and the provisioning of the soldiers, • the enormous necessary supplies of ammunition, guns, and other weapons of war, etc. — it seems that, sooner or later, an end must be reached by the process of internal exhaustion. Surrounded on all sides by enemies, and with her seas closed by hostile fleets, outside supplies, in the quantities required, would seem to be quite unobtainable. It will interest you to learn that, according to the German Year Book for 1913, the imports into Germany for 1912 totalled £534,570,000. These came principally from the United States, Russia, Gveat ßritain, France, and India, and were represented in great part by foodstuffs. These sources of supply are now. of course, absolutely cut off. Further, her export trade, which in 1912 amounted to £447,800,000, is also completely paralyeed.

A DEPRECIATING CURRENCY. "Already we hear that the German people are beginning to stagger under the stupendous burden imposed upon them. It was announced, only a few weeks ago, that the bankruptcies in Hamburg alone, since the opening of the war, showed deficiencies aggregating £25,000,000. The partial success of Germany's last war loan is reported to have been achieved only by commandeering the resources of the banks, many of which, if there be truth in the rumour, must be now practically in a bankrupt condition. Gold payments have ceased throughout the country : an inconvertible paper currency in notes of the Reichsbank is the legal tender medium, and is rapidly depreciating in value. A couple of months ago, these notes were at a discount of 35 per cent. Some traders have declined to receive them in payment, and the German Government had in consequence taken steps to close their shops. "Any sane ruler would see that all this is the 'writing on the wall' which spells, in large letters, disastev and misery for the German nation; but the dangerous monomaniacs who at present guide the destinies of the unfortunate German people are obsessed by an irresistible craving for martial glory, and are blind alike to the criminal wickedness of their conduct and to the absolute futility of their aims. They fail to see that the whole civilised world must, if necessary, take up arms in self-defence for the purpose of curbing a vain and covetous nation which, by means of the military ascendency and superior brute force which it believes itself to possess, and the application of scientific ingenuity to the production of the most powerful and destructive implements of war, is seeking to lay the world at its feet. A policy having such a goal before it must assure its own final and everlasting defeat. THE WAR A TERRIFIC DAILY COST. "A well-informed and reliable London financial journal, when discussing, from the financial standpoint, the improbability of a great protracted war, pointed out that for each soldier, including initial and consequent expenses, 10s per day is usually counted in an estimate. This gives 'a total daily war expense in Europe of over ten millions sterling (or an annual outgo of, Bay, £3,650,000,000). Of this Germany would provide for some £2,200,000 per day ; Austria, for £1,600,000 ; Russia, for £2,100,000 ; and France, for £1,600,000. Even Switzerland was then spending some £60,000 daily, and Holland probably £100..000. Certainly, if finance is the main nerve of modern war, this Armageddon cannot last many months. " My opinion is that the end will come sooner than has been expected, and possibly with a dramatic suddenness that will astonish us," added the Chairman. " In pleasing contrast with the crippled condition of Germany's war finance, as evidenced by the conditions and results of her last loan flotation, there came to us a few days ago the gratifying news of the unqualified success of the first British -war loan of £350,000,000. offered for subscription, about the middle of November. Prior to that the Chancellor of the Exchequer had been providing for requirements by the issue of six months Treasury bills, of which about £15,000.000 fortnightly had been offered with fair regularity since the opening of the Avar. A loan, however, "was neces leary for the purpose of funding these floating liabilities, and providing for further requirements. The loan has a currency of thirteen yeaTS, the rate of interest 3g per cent., and issue prices £95 per £100, which places the net yield (including redemption) at practically 4 per cent, per annum. Exceptionally liberal advantages were offered to subscribers, in that the Government had concluded an arrangement with the Bank of England under which the Bank 'will advance against the stock of the loan at any time during a period of three years from the date of issue, at a rate of interest 1 per cent, below the Bank rate for the time being, and up to the full issue price of the stock, i.e., 95 per cent, of face value. It is understood that no less than £100,000,000 of the stock was taken up before the public subscription lists were opened, and this no doubt contributed to the complete success of the issue. It is satisfactory to learn tliat the British Chancellor estimates that thia loan will provide for all his requirement* up to July next, by which time let us hope that the end of the war, if not actually reached, will be well in sight."- _