THE WAR AND BANKING

Evening Post, Volume CXIII, Issue 88, 13 April 1917, Page 6

THE WAR AND BANKING

How the -war directly and indirectly affects the monetary position \a NewZealand id made evident in the banking' returns .for the March quarter of 1917. In the first place the exceedingly high prices which the main exportable pro-' ducts are now realising ar© directly due to the war. Fanners have never before received such prices, -nor dreamed of tho values which the war has made them now regard as normal. A great accumulation of wealth, has naturally followed. For example, .the average of the fised^and free deposits, or money-on-deposit and' money -on current account,. with the banks at the 31st March for the years 1912, IBl3', and 1914, in round figures, was £23,978,000. For the quarter ended 31st March last She-fixed and' free deposits amounted to £44,356,535 — an increase of £13,082,482 over the de--posits at 31st March, 1916. The average for the war years, 1915, 1916, 1917, is £34,153,000, or over .£10,000,000 a year more during the war than the threeyears immediately preceding it. As--suming that the £10,000,000 raised by way of war loan disposed of this sur- • plus for one year, ; there is still £20,000,000 to the good. Set off against, that, of course, are higher'costs of production, transport, insurance, and exchange, and a- general uplift in the price of all commodities imported and locally produced. Still, this increase in the Dominion's 1 wealth it is fair to attribute to the war and the consequential necessities of the nations requiring our produce. As practically all the produce goes to the United Kingdom it follows that the high prices that New Zealand producers are now receiving are at the expense of the people of the British Isles. Their adversity is our opportunity. True, some return is made by way of purchases of British. goods; but the latest available figures (1915) slhow that the value of these was £10,623,000, whereas New Zealand exported to the United Kingdom during the same year goods'to the value of £25,389,000—a credit in favour of the Dominion of £14,766,000.

While advances made and bills discounted by the banks axe not necessarily exclusively representative of imports, they do, in. large measure, indicate the relation of imports to exports. The bank returns at 31st March, last.: ahow 1 that advances and discounts amounted to £27;695,927. This was an increase of £3,962,035 over the March quarter of 1916, and the aggregate of advances and discounts for that year was remarkably like its predecessors back to and including 1912; in fact, it may be taken as an average of approximately £23,500;000 for the five years. How, 'tihen, to account for this substantial increase in advances (or overdrafts) and discounts—the latter being only some £65,000 more for the 1917 period than for that 0f'1916? It will probably be found that again the war has operated. In this way: There were vast quantities of produce coming off the farms in the form of cheese, butter, meat, aifti wool, all ready for shipment; but there was not sufficient cargo-space available for it. There are no doubt still in store very large quantities ,of such cargo, to say nothing of tallow, hemp, pelts, and other products—all awaijang opportunity for shipment. Advances by the banks, then, upon such delayed produce may explain the expansion of overdrafts by nearly £4,000,000 over those as at 31st March, 1916, and the preceding years.

i. Again, the influence of the war is tabs plainly seen in the growth of the-? circulation of bank notes in the Dominion. For the quarters ended 31st March,'l9l2, 1913, and 1914 the bank notes in circulation averaged £1,700,000 ■each quarter; next year, 1915, they had risen to £2,639,000; in 1916, to j £3,171,553; and by the last March quarter They had swollen to £4,637,449. To meet these notes in pre-war, times,, should they all simultaneously be presented for payment, there was four to five times their face value in gold in the banks' vaults. But soon after war broke out New Zealand* bank notes were made .legal tender for definite periods, and these have been renewed from time to time. Formerly anyone presenting a£l or £100 bank note *at the bank counter. ■could dtemand £1 ov £100 (as the casemight be) in gold. Now this cannot.be, done. Sovereigns are probably lying in the foot of many a stocking, but they are rarely passed nowadays from 'hand to hand. In 1912, 1913, and 1914, attile end of the March quarter, the average holdings of gold by the banks | was £5,300,000. On 31st March, 1915, it rose to £6,420,000, and the next year to £7,120,000., This year it is £7,873,000, so the gold accumulations have been augmented to ■ the extent of ■ £753,000, but more than half this sum is accounted for by uncoined gold. As no gold is supposed to leave the country | the hoard must go on.accuraulating. The returns as a -whole show tihat the country is exceedingly prosperous; that-is, that portion of its people which has goods' to sell that are badly -wanted. But the prosperity is not general, because the | "war prices overseas have elevated the) local prices for identical goods. Those "whose only marketable coiamoditiy is their labour, mental or manual, and the price of which, remains at the prey was levels, are ruefully discovering—tifaafe!

the purchasing power of their returns is diminishing. This fact, of course, is not disclosed in the banking returns, even though the returns do show "the marked influence of the war in the three banking departments—borrowing, lending, and currency.