EFFECTS OF THE WAR

Evening Post, Volume CXXX, Issue 39, 14 August 1940, Page 12

EFFECTS OF THE WAR

HAMPERED BUSINESS

THE AMERICAN POINT OF

VIEW

"Evening Post," August 14,

Reviewing some important changes in financial conditions brought about by the war, .jthe American bank the Guaranty Trust Company of New York makes particular mention of exchange control. Nowhere, the bank remarks, have the disrupting effects of the war been more evident than in foreign exchange markets. The German, Polish, Danish, Norwegian, Dutch, and Belgian currencies are no longer quoted in New York; future quotations for Swiss francs have also disappeared; and the French franc ceased to be quoted on June 17. With the principal European markets either closed or subject to rigid Governmental restrictions, New York is the only free major exchange market now remaining; and an increasingly large share of the world's business is directed there. As was the case during the World War and for a time thereafter, the U.S. dollar is tending to supplant the £ as the principal international currency for a large part of the world. This statement does not apply to transactions with the Allied nations, which are under the- control of Governmental exchange authorities centred in London.

CONTROL OF RATES

" One of the most interesting aspects of war finance as seen by the bank is the policy adopted by the Allied nations to control exchange rates and to build up their holdings of dollars and other foreign currencies. Soon after the war began, the British. Government ruled that exporters in that country who obtained foreign exchange for goods shipped abroad must deliver such exchange to the authorities and accept payment for it in sterling at an arbitrary rate. This step alone did not suffice. Buyers were free to pay in sterling, obtainable in the open market at a substantial discount from the "official" rate; and many buyers of British goods elected to do so.

RESTRICTED TRADE,

In March, new restrictions were set up, under which American and certain other foreign purchasers of British tin, rubber, jute, and some other products must pay for the goods in their respective currencies, or, as an alternative, in sterling purchased at the "official" rate. The immediate effect of this ruling was to diminish the demand for "free" sterling and widen the disparity between the "free" and "official" .rates. The "official" rate for sterling has remained stable for some time at approximately 4.03 dollars, while the "free" rate has fluctuated widely, dropping temporarily below 3 dollars in May, 1940, and stood at 3.58 dollars at time of writing. It was pointed out too that wide disparities exist also between the "free" and "official" rates for the Canadian dollar and the Australian and New Zealand pounds. ■■;•. , •Since these remarks were published the "free" exchange has been further dealt with. On June 7, 1940, the British Government decreed that all exports from the United Kingdom to the United States arid Switzerland must be paid for in sterling obtained-at the "official" rate or in American or Swiss currency. Similar action was taken by other Governments in the sterling area. . - vFurther confusion in foreign exchange markets resulted from the latest war developments, especially .for payment of imports of rubber from the Netherlands Indies. This particular difficulty was ameliorated to some extent by an agreement to allow the cargoes to accumulate in warehouses while attempts were made to arrive at a final settlement. The seriousness ofj the situation arose not only from the possibility of heavy losses to exporters or importers, but also from the threat of a shortage of crude rubber.

A UNITED STATES PROBLEM.

The United States Government faced a difficult problem in attempting to prevent the unauthorised use of funds held in America by the Gov'eenments and nationals of invaded countries. After each 'invasion the President issued an order "freezing" the American bank balances and security holdings of • the occupied country, and legislation has been enacted to give the Government specific authority to exercise such power.

As the Guaranty Trust sees present trade and financial conditions arising out of the war. the aggregate effect of the exchange and allied regulations has been to "force trade and finance in all countries into prescribed channels and to confront those branches of our own business that depend on international contacts with a set of obstacles that has no parallel in recent experience. Almost throughout the world, free enterprise has been supplanted by controlled economy. "To appraise the significance of these conditions with respect to the future is clearly impossible in view of the complete uncertainty that surrounds the most vital factors in the outlook.

IF THE WAR LASTS

"The duration of the war. its possible spread into new areas, and its final outcome are, of course, unpredictable. If the conflict is of long duration, there is little reason to suppose that its economic effects will be less severe than those of the World War. If it results in the creation of an economic order in which free enterprise is deliberately and endiiringly suppressed throughout the greater part of the world, its consequences to the United States are likely to be even more serious and far-reaching. The readjustments that American business has been obliged to make thus far may well prove to be of minor importance in comparison with those that may have to be faced in the future"

AUCKLAND WOOL DISPOSAL.

nrffc 156?1^ of, 7° o1 crutchings and oddments.m Auckland stores is proceeding. Prompt date has been fixed a* August 28. the usual fourteen days after the completion of the appraisement. The usual conditions will apply fP&tjP*? cent< of the returns will be held back as a suspense account to provide for any adjustments. The appraisements will give growers an opportunity of disposing not only of crutchings, but also of any fleece wool which was shorn too late to be included in the final appraisement of the past season held in April.