STERLING BALANCES

Evening Post, Volume CXV, Issue 108, 10 May 1933, Page 10

STERLING BALANCES

SALES TO TREASURY

LONDdN COMMENT

The London "Evening Standard," on March 24 had the following significant comment on the operation of the New Zealand exchange:'— r'r "New Zealand'may soon encounter difficulties in. holding, .down her of exchange at a discount of 26 per cent., against London. Since the: value of New Zealand's currency was s,ud-j denly reduced to this level earlier in the year the demand for New Zealand pounds has substantially exceeded the supply. This is owing to the effect of the low exchangei in stimulating exports and checking imports.' The result is that a considerable surplus of sterling resources is piling up within the New Zealand banks. If surplus balances had to remain-with the banks these institutions would •be compelled to seek a readjustment of the exchange, but under the terms of the Bank Indemnity, Act passed in Januajy: the Government has agreed to take over any surplus funds. ; "It is understood that sales of sterling to the New Zealand Treasury, are now in {progress, but up to the present the' Government has been able to carry out its undertaking to purchase without " recourse to now '. Bankers in London are doubtful; all the same, whether the position can be maintained without raising new-, resources for very long.-'- /'■■■• "The feeling that the New Zealand pound is. selling below-its true value is also encouraging speculative activity. Bankers are trying to prevent purchases by speculators in the official exchange market, but a few unofficial! deals have been put through at quotations considerably removed from the official rate. Fortunately for the New Zealand Government, the big export season is now drawing to a close, but speculators for the rise are encouraged by the huge success of the -internal loan conversion scheme."