CONVERSION LOAN

Evening Post, Volume CVIII, Issue 117, 13 November 1929, Page 11

CONVERSION LOAN

FAR-SIGHTED POLICY

DOMINION WELL SERVED

(From "The Post's" Representative.) LONDON, 10th October.

New Zealand may congratulate itself that it is well served by its financial advisers in London. More than a year ago they seemed to have been aware that had times -were coming, and their advice to the Eeform Government to clear their decks of, new money loans, and get on -with the conversion of the £29,000,000 falling due on Ist November, 1929, was supremely wise. How wise may bo seen by the result of the latest £5,000,000 conversion loan.

It is not often that a New Zealand loan hangs fire, and it is very seldom that the full period allotted for applications for New Zealand stock is needed. However,'as already reported, about £1,500,000 of the £5,000,000 offered was left on the hands of the underwriters. It is natural, therefore, that those an financial circles should be congratulating the* Dominion on its narrow escape. It would have been absolutely impossible to have offered the full sum for conversion at any time during the last few months, and the issue of new stocks for paying off the old ' would have been a most,costly undertaking. The whole business might have had a most deleterious effect upon the credit of. the Dominion. . The Government which decided to get in early with the conversions and to leave' this year clear of new money loans did an inestimable service to the Dominion. Primarily, of course, the London financial advisers should have the credit, as no one in New Zealand itself can be expected to know th^fsituation or prospective situation at this end.

. America 'a wealth has been the chief cause "of England's troubles. The NewYork Federal Besefve Bank makes some attempts to control the rate of interest on loans, but all the 80,000 banks in the United States do not by any means belong to the Federal Reserve system. The open market rate has been as high as 20 per cent. There has been plenty of money, speculation has been rife in the States, and borrowers seem to have been content to pay these enormous rates for accommodation. Even recently the open rate was 10 per cent. No wonder the gold of this country has been taking flight. With the exchange against us (say at 4.84 as compared with parity 4.86 2-3), it was even a profitable thing to buy gold and ship it to the States, where one could always get 4.86 2-3 dollars for the pound. Although the French bank rate is 3} per cent., it has to be remembered that that is only nominal. ..If a man wants accommodation from the bank he has to pay 7 per cent. That has been the open rate in Paris; which has attracted large quantities of gold. Again, four years ago, when the franc was fluctuating, there was what was called the 'flight from the franc." People bought dollars and sterling with their' francs, and set up large credits in New York or London. Recently, the French holders have been realising their sterling credits, converting them to gold and shipping it back to France. ' The time came when London could hold out no longer. It must save the gold on which the gold standard is based. The raising of the Bank rato to 6J per cent, (as compared with the 6 per cent, cf the New York Federal Reserve Bank) has had an immediate and remarkable effect. Weak holders on the New York Exchange are selling out, and the market rate has fallen. Exchange has come up to parity, and this means that the shipments of gold from South Africa can be bought up by the Bank of England without fear of competition from American buyers. Last week the Bank secured £900,000 worth of gold. The raising of the Bank rate was a drastic step, but obviously it is having .the desired effect.