PAYMENT IN STERLING

Evening Post, Volume CXVI, Issue 34, 9 August 1933, Page 6

PAYMENT IN STERLING

Without prejudice and on conditions, the Auckland Transport Board has agreed to pay interest in sterling upon its debentures domiciled in London. This is satisfactory as far as it goes, but the statement of the chairman of the board and the report of a discussion at the Southland Power Board meeting indicate that the sterling payment has been agreed to as a result of pressure from the Government. The local bodies concerned apparently do not yet realise fully that, the cash saving possible from litigation or insistence upon the letter of their bonds may be trifling compared-with the damage done to New Zealand credit as a whole. The Aucklaricl'Transport Boar,d chain man stated yesterday :— The position taken up by, the financial authorities in England is entirely wrong and indefensible, but Wo have to acOOpt it. The board offered facilities to these people to litigate, and wo even offere.d to placo the sum involved on doposit in London,'but "this offer wag t turned down in terms whicli-I call extraordinary. Tile chairman should realise, however, that financial transactions cannot always be determined according to the letter of a contract. -Holders of (debentures in London have bought them in the belief that the interest was payable in London in sterling,' and the fact that payment had previously been made in sterling warranted this belief. If they are now told that they must submit the issue for legal interpretation, it is not so extraordinary that they should say: "We do not like this way of doing business, and we prefer not to fight, but to do no business in future." The report of the Southland Power Board.meeting throws further light on the negotiations that have been taking place. The Southland chairman stated that Mr. Forbes wanted an assurance that the Southland test case would not come on and that the Auckland business would be settled. At a special meeting of the board previously it had been decided to give the Government an assurance to pay interest in sterling on the next payment in September, ibut yesterday notice of motion was given to rescind that resolution. The board also decided that it could not give an assurance, as requested by tho Government, t6 refrain from legal action in London. Tho boai'd issued a statement in which it was said that tho Government had given an undertaking in London that the board's test case would bo abandoned and had asked the board to agree to that course, failing whloh the Government Would bring down legislation* to compel .tlio board to pay its interest in London in sterling. ' If this is a correct statement'of'the case, it is evident that the Government has had to go beyond the persuasion stage to have the issue cleaned up* It is regrettable that this should have been necessary, but Mr. Coates would have failed in his duty if he had allowed the matter to rest. As Minister of Finance he is mainly responsible for the maintenance of New Zealand credit in London; and that credit cannot be allowed to suffer because of local government action which may give a wrong impression of the Dominion's capacity and willingness to carry put ht full all .moral, ns well as legal, obligations. Admittedly local bodies are placed in a difficult position because their liabilities have been increased by Government exchange inflation. Tho Government did not agree to recoup thcni for the extra expense thus thrust upon them, but it would be making the position much worse to attempt to make the London bondholder pay for our own Government's mistakes. As it is the exchange rise has done us no good and greater harm still would result if London bondholders were compelled to accept payment in New Zealand currency.