MONEY CONDITIONS

Evening Star, Issue 18120, 9 November 1922, Page 9

MONEY CONDITIONS

MR BEAUCHAMP’S REVIEW. INTERNATIONAL DEBTS AND THEIR PAYMENT. AN. IMPORTANT ANALYSIS. [Pee United Peess Association.] WELLINOTON, November 8. ' Mr Harold Beauchamp, formerly chairman of the Bank of Now Zealand, who Ims been absent from Wellington for some months travelling in the United States and 1 Groat Britain, returned to-day. He spent a considerable part of his time in tho city of London, particularly 'in tho financial quarter. Questioned upon his arrival, he made tho following statement: “ International finance is unquestionably j tho most complex problem at tho moment, ■ and those competent to express an opinion agree almost unanimously that there will have to bo a wiping off of tho stupendous liabilities incurred by. .the nations engaged J in tho Great Wav, nave perhaps Groat Bri- ! tain, before financial equilibrium can be vectored to anything approaching tho prowar level. Great Britain is quite willing to forgive tho debts of Franco, Russia, Italy, and Belgium, amounting roughly to £1,700,000,000, provided the United' States of_ America would do the same, merely stipulating that Ainerica should give Great Britain time, in which to discharge her obligations to tha,t country, totalling £850,000,000 odd. It has also been suggested that more liberal terms should be ' granted to Germany; but to that proposal Prance, fearing a rapid recrudescence of Germany, her ancient and implacable foo, , has not lent a sympathetic ear. Is that to be wondered at?

“ On many occasions I have expressed tho opinion that if Great Britain undertakes to wipe out the debts 1 due to her by France, Russia, Italy, and Belgium, the United States should accept in payment of Great Britain’s liability to her 'of £850,000,000 bond® or debentures, to be created by Germany for a sum to be agreed upon by the parties concerned. If necessary, these bonds or debentures oould be guaranteed by Great Britain and her European Allies, who. would so substantially benefit by Great Britain’s generosity. It is obvious that America., supported by force ina.jenrc if necessary, would bo in a much belter position to collect moneys payable under these bonds or debcnlu-’es than the European Powers individually or collectively.

“ Spanking at one or two public gatherings just 'prior to my sailing from England, Governor Cox, of Ohio, said that he fully recognised how important it was for the States to come to the rescue of Europe, Failing that, nothing but bankruptcy stares several European nations in the face. Austria, for example, is now standing on- the brink of a. financial abyss.” Mr Beauchamp was asked to throw some light on the apparent anomaly of the higher rates of interest demanded by investors and the low Bank o! England rate of discount of 5 per cent, since July' '"st. In reply, ha pointed l to the fall in the bank rate from per cent, in June, 1921, to 3 per cent, as at July 13, 1922. It is generally concluded, ho explained, that these reductions from 6 per cent, on June 23, 1921, to 3 per cent, on July 13 reflect a lack of confidence arising from the depression in trade. Of course, this factor ha« played a great part in leading to reductions in the bank rate from 7 per cent, in 1920 to 3 per cent, to-day. There is another element, however, in the matter, and that is a return from the abnormal conditions created by the war and its after-effects to something approximating normal. ■ There would not have been'a 7 per cent, rale in 1920 bad it not been for the fart that a- huge over-trading position had been created, which required a high rate of money to tiring it into cheek. This overtrading has. of course, disappeared, and the effect is to he scon in tho lower value of money and the reduced activity on the part- of the banks. Lombard street's diminished (rates are now reflected in the -activities of Thrcadnecdlo street and in tho appreciation of Stock Exchange securities. Referring particularly io the low value of money in London, Mr Beauchamp said that the credit produced by Government expenditure was largely of a nature that could only be employed in short form; hence the cheapness of monev, which has since moderated owing to tho deflation which h-ae taken place, Tho need of the Government to offer Treasury bills at 41 per cent, prevented long-dated stocks from appreciation. In short, the people were unwilling to face risks or mortgage tho future, .They were living from' hand- to mouth, so to speak, and wore glad of a little. Two main reasons account for tho lower -rates ruling for money, although they have now hardened to some extent—namely, repayment of Treasury bills and the lessening- demand for trading purposes. _ Mr Beauchamp, was asked to explain the rise -in tht> price of gilt edged securities, noticeable in, NeWZealand, and, it appeared, in London also. He exhibited a. table showing the prices of selected! securities as t-hev were on August 15, 1921, and how they had appreciated, by August 15, 1922. Among them may bo mentioned the following rises-:—lmperial Government 5 per cent, war lean, 12,5-16 per cent,; conversion loan, 13f per cent.; funding loan, 17’ per cent; victory bonds. par cent. ; Hew Zealand 4 per cent, loan, 3|- per cent.; Canada 4 per cent, loan, 13| per cent. ; and Quenslaud 4 peri cent, loan, 14 per cent. The great improvement in value, he said, was, of course, duo to the reduction in value of money a-ndi Iho bettor terms which the Treasury had been able to make in' its issue price for Treasury bills. These operations had l all assisted tho gilt-edged market, and- it promised to make borrowing in tho future easier for well-secured issues. Incidentally, Mr Beauchamp remarked' that tho credit of New Zealand by comparison with other countries stands very high, and on August 29 Now Zealand 6 per cent, stock of 1953-45 was actually quoted two paints higher than tho British war loan, 1929-47, which then stood- at ICO.

Discussing deflation and tiro prospects for money, M:r Beauchamp said there was abundant evidence of the progress of deflation, It began with wages. Manufacturer's and others, finding that the/ were unable to secure orders on inflated prices, 1 had to shut down their works. They wero only -roorened after substantial reductions on wages had boon made. This severely reduced fcho payments made week by week ' to workers, and .so currency notes were j the first to feel tire effect of the changed conditions, and circulations declined by £65,000.000. Then traders, by collecting their accounts and l reducing stocks, secured funds whereby the banks were repaid a portion of their advances, and these declined during 1921 by £100.000,000, and have fallen since the hanks took up Treasury bills, and so kept their deposits intact. Then the Treasury issued large masses of Treasury bonds, the proceeds of which enabled' a reduction- of Treasury bills by over £460,000,000. Consequently the banks lost deposits, which reduced their power to lend; money. Tho market is, therefore, fin-ding its operations in excess of its resources. Tho leading joint slock banks are poorer by the deflation, eo. they cannot give tiro market much money. The Treasury is prosperous si the 1 moment), with a surplus of revenue over i expenditure, so that it has no need to borrow from the Bank of England. U | may, howover, become poorer, or it may 1 desire to make money cheaper, in which j case it lias only to borrow on ways and means at the Bank of England, in order to create credit, and so bring back ease to tho money market. .“Trade is improving,” Mr Beauchamp continued; “but,” he added, “with half Eurepo in financial disorder the expansion in business is likely to ba moderate, and with prices and the costs of production steadily declining, the demand for credit ia not likely to be great.”