DEMAND FOR MONEY

Evening Post, Volume CXX, Issue 86, 8 October 1935, Page 12

DEMAND FOR MONEY

SHRINKAGE IN DEPOSITS

POSITION IN AUSTRALIA

"Evening Post," October 8. I Discussions between the banks in ••' Melbourne and Sydney have been itaking place oii the subject of current 'rates for deposits and overdrafts. De- - posits- show a decided shrinkage and ] the demands on the banks for accomvmodation by way of overdraft are'increasing with the favourable turn of ■ trade. ; Mr. W. Foster Woods, president of the Melbourne Stock Exchange, had ■occasion to recall to membex-s what "had been done by the Federal Govern-ment-to .reduce the price of money. ■ "A little more than three years ago ■we were led-to believe that our Government was in a very tight corner, and holders of Government Bonds sacrificed 224 per cent, of their income from that source. That was a great sacrifice, and meant a curtailment of expenditure .by those people tending to creation of further unemployment. On top of that reduction. of income, which caused'much suffering; the adviserslcf'. our.".Government advocated a.a increase in our price level. What that-was-for! am/sure only our financial,,; experts can tell '.you. You cannot regulate" oversea prices. We must avoid undue enhancement of our own cost of living; it makes higher' nominal wages necessary to maintain what is called our standard of living, and hence pur cost of production goes up. Had we endeavoured to increase the purchasing value. of our pound note, we would have been on much sounder lines." EXCESSIVE BORROWING. Me. Foster warned members of the Stock : Exchange and the . public .that excessive borrowing, would increase •« the interest load to'breaking point. He added: "We are told frequently by those in command that Australia is turning the corner. We have turned so many corners that we must be on a yery zig-zag road and I hope it will soon straighten out. For the last year or two.we have, been having a period of - apparent prosperity. I want you to .'consider how much of that prosperity is due to the spending of borrowed money, but there must soon come a'time when we reach the limit. Borrowing in a depression is perhaps good, '.but if prosperity is- here the country ■ should be able to carry on with less'stimulant. "Cheap money may, t be an.incentive 1 to- enterprise, • and "inducement to people to extend their businesses or to launch., out in hew ones, but it has never, indicated permanent prosperity." v lnythe .informal discussions that have been'taking place between the banks of Australia it was shown that there has.been a progressive decline in the batik •■' deposit", rates in Australia*' and: New Zealand during the last three or four years and the movement has been accompanied by a fall in ■• overdraft rates. This is the first indication of a reverse/movement, which will naturally ~mean a correlated" rise in deposits and'qy.erdrafttrates.i. > ,-. ..:■. , . ■', ■.''. DEMAND FOR OVERDRAFTS. It is reported that no decision has been made by the banks' representatives in Australia. Reviewing the position, the Melbourne "Argus" states that with the general improvement of trade and. commerce, the demand for overdraft accommodation at the banks has grown, while the Volume of interestbearing deposits has fallen. This is due first to the fact that large sums of money owned by oversea interests have been withdrawn in view of the improbability of the exchange rate being lowered, and second, to the fact "that depositors have found more profitable investment for their funds in Government securities and in other directions. , ' The majority. of the banks are of opinion that the natural law of supply and demand should be allowed to prevail', but on the other/side is the contention that the Commonwealth Bank should enter the field as a central bank, and regulate the position by buying long-term Government securities on the market, and thus reduce theiinterest yield on market prices, by discounting more Treasury bills, or by increasing the oversea exchange rate. The Commonwealth' Bank is understood to be unfavourable to any of these courses, which might have a definite' inflationary effect.