FUNDS AND CREDIT

Evening Post, Volume CXXIX, Issue 23, 27 January 1940, Page 12

FUNDS AND CREDIT

The monthly summary of assets and liabilities of the trading banks (as on December 25) and the weekly Reserve Bank return (as on January 22) together J*irnish interesting information on the financial position of the Dominion. A pleasing feature is that the trading bank overseas assets at £9,881,133 are almost £5,000,000 greater than in the previous December. Of course, the overseas liabilities, £2,772,000, must be deducted to show the net sterling position. With this should be set the fact that the Reserve Bank sterling is also up by £1,500,000 on the week (to £8,346,000).' As the Reserve Bank return is a month later than the trading banks statement, there may in the meantime have been a transfer of sterling from the latter to the former. But, even allowing for this, the position has improved, as it should at this season, though not to the extent that would permit relaxation of vigilance. Not so satisfactory is the position of Government indebtedness revealed. Government securities held by the trading banks are almost £6,500,000 greater than in December, 1938, and Reserve Bank "other purposes" advances at £20,860,000 continue to rise. The Government is drawing heavily upon the trading banks and upon Reserve Bank credit. At the same time the trading banks have a greater excess of deposits over advances than they have held for three years. Partly, this excess is explained by reduction of overdrafts through the sale of stocks which are not replaced in equal volume by imports; partly, it may represent funds held here which would otherwise be transferred overseas. But there is one point to be noted: when there is such a surplus of deposited funds (some, at least, available for investment), Government recourse to credit instead of the use of actual savings is hard to justify. It is inviting inflation by creating surplus money. ' ,