VALUE OF MONEY

Evening Post, Volume C, Issue 89, 12 October 1920, Page 8

VALUE OF MONEY

SIGNIFICANT MOVEMENTS

COLLAPSE OF THE RUPEE

A LOWERING OF PRICES.

Money, like other commodities, has its price, and, like them, its price fluctuates. It is subject to the law of supply and. demand, although that law, as everyone knows, can be manipulated—for a time.

When the price of money falls the prices of other commodities usually advance. When money became dear, the prices of other commodities usually decline : but they, too, can be manipulated —for a time. Taking into account the high cost of production, and especially of the factor of labour, o:E many commodities, there cannot be a. reduction in their price without serious inconvenience and possibly distress. There are portents alreadj' of such inconvenience, and even of distress. Reports have been current from time to time of an advance, in the Bank of England discount rate from 7 per cent., at which it has stood since 15th April, 1920. These reports have not yet crystallised into fact. There . is undoubtedly financial tension in London, and what first happens there very soon happens elsewhere. Evidence of 6ome stringency in London has been sharply brought home to New Zealand, and in this way. A largu amount of money being required by Australian banks to pay for Australian importe, also to meet anothev large amount. demanded by the Commonwealth Government to meet engagements maturing in London, there was recently a shortage of funds for these purposes in London. As a result of this temporary stringency, telegraphic transfers, which in Australia only a few months ago wens selling at a discount, and a fortnight ago at round, about par, suddenly advanced and, in fact only a day or two ago, reached as high as £2 5s per cent, premium. EXCHANGE ON LONDON. Australian banks, it is understood, have stopped negotiating drafts on London except for their own customers. It is a question if any of these banks having funds in London to-day is inclined to accept any further .business on a fairly large scale at the high rate of 21 per cent. This rate is higher than any prevailing during the early days of the war, to the extent of § per cent.' i

, One of the largest Australian banks with extensive connections in New Zealand has already intimated to its clients in the Dominion that it is unable in the meantime to accept any telegraphic transfer business on London. The ordinary New Zealand rate of telegraphic transfers in London up to recently was £1 per cent., with a concession on that rate to big customers. .The Kew Zealand telegraphic transfer' rate has now been advanced to £1 10s per cont., and' it is reported that it will go to £2 per cent.

AN EASTERN" DISTURBANCE. •In the East a sensational fall has taken place in exchange. On cabled information received yesterday from Calcutta, Messrs. Gfeo. A. Ginn and Co., importers of Eastern commodities, report :—"A sudden decline in the value of the rupee as compared wil/h the sterling equivalent has taken place, and a, consequent disorganisation of financial arrangemente, making it extremely difficult for exporters from that market to make offers to buyers in other parts of the world with any certainty of their being able to fulfil their obligations'. On the other hand, there has been a steady advance in the free on board, quotations, for almost all Eastern produce, and, compared with offers received by the mail just in, the quotations cabled indicate an advance of from 2d to 3d per lb on all grades of tea and a corresponding advance in such articles as woolpacks, cornsacks, etc. ?>

The average sterling equivalent, of the rupee from the year 1872 onwards was Is lOd to Is lid up to 1893, when the mints were closed to the free coinage of silver, and a gold standard was established, trie rupee being fixed at Ik 4d. This continued with very slight fluctuations to 31st March, 1919, when the average for that year was Is s£d. During 1919 the movement was upward, starting at Is 61d and reaching 2s sid. In 1920 the rupee continued advancing until in March of that year it rose to 2s 10£ d: Then the Indian and Imeprial Governments in conduction fixed the rupee at 2s. It has since been coming steadily * back until it reached the basis of 2s, at which it stood for some time. Now it has suddenly slumped to Is Bd, to the consternation of x importers from India and Ceylon. The future is perilously obscure. All quotations at present are for free on board prices, but no one knows what exchange will be ruling when the' goods; com© to be shipped. The risk is all on the importer, who is naturally j disinclined to carry it. People were in the act of making forward contracts for the purchase of woolsacks and cornsacks as far forward as July-August, 1921; also, purchasing other goodr for more or less future delivery. A certain amount of business had, in fact, already been done on the basis of the rupee at 2s. The latest announcement has resulted in a complete arrestment ot business until the position is more defined. NEW ZEALAND MARKET' RATES. Financial opinion, so far asi The Post has been able to obtain it, is unanimous that it is unfair of the Government to force \a loan of six millions ov to themarket at 5£ per cent, subject to the highest rate of income tax. It is considered specially unfair in the present uncertain condition of the money market and the high current rates ruling for accommodation. The banks have recently advanced overdraft rates, and. a further advance of £ per cent, is believed to be pending; the mortgage rate of first-class propositions is in the vicinity of 6£ per cent. There is an all-round tightening, of the money market in New Zealand' in sympathy with the rest of, the world. Local bodies, such as corporations and boroughs, harbour boards and electric power boards, are in the market for a very large amount of money in the aggregate, but at a fixed rate of 5£ pw cent. Then there have been the heavy calls upon capital made by industrial and other companies. These combined have added their "pull" to the tension already existing. It is felt by some with inner knowledge of finance in N.Z. that if debentures are to be subject to full income tax, that they wil)._ presently be sold as low as £85, involving a loss of £15 on every £100 of Government debentures that the investor is forced to take up. As to the debentures proposed: to b© issued by public bodies at 5£ per cent., it seems that there is a very remote chance of their being taken up. The position is accentuated by the fact that thra debentures of the Auckland City Council to shareholders of the Auckland Tramways Company, in payment of the purchase of their undertaking, are offering at £90. giving a return to the investor of £6 2s per cent. Even at this attractive price, it is believed a by no, means large amount of the stock has been sold. IN A STATE OF FLUX. i' The whole monetary position at the present time is in a state of flax, full of uncertainty calling for extreme caution. It is so not only in New Zealand, perhaps rather less here than elsewhere — but is widespread. The National Bank of Commerce of New York, in. a communication dated 19th August, reported

that bank loans to finance actual harvesting of new crops were being reduced, but that credit requirements would not reach their maximum volume for some time to coma; that easier credit was not expected until tha peak of the movement had passed; that rates in Jfew York had ruled steady during July to August; that commercial borrowing had continued at the firm level of 8 per cent, and call money at 9 per cent., declining to 6 per cent., reflecting reduced volume of requirements resulting from continued stock liquidation. The Bank' further reports: "An important element is the determination of business interests to rarry into effect a new policy of conducting their affairs on sane and conservative lines, looking towards stability and continuance in business, rather than to the policy which until recently,prevailed of doing as much business as possible at high prices oji a basis of excited public buying with resulting abnormal profits." This .may mean easier prices. . „ '