STERLING BALANCES

Evening Star, Issue 23325, 22 July 1939, Page 12

STERLING BALANCES

RELATION TO TRADE BALANCE CURIOUS SET OF FACTS Much has been said in Parliament recently about the shortage of New Zealand’s overseas funds, but a curious set of facts relating to the Dominion’s trade balance and her holding of sterling exchange seems to have escaped attention (states the Christchurch ‘ Star-Sun ’). In the first five months of last year, New Zealand had a favourable trade balance of £7,808,000, which permitted the strengthening of sterling holdings by £4,500,000, after allowing for payment of interest and an admittedly substantial outflow of capital. For the first five months of this year the favourable trade balance was higher at £8,648,000, and as capital outflow from the Dominion was virtually suspended, it is only natural to assume that there should! have beer, a greater improvement in sterling holdings than a year ago. Yet the fact is that sterling funds in that time increased by the negligible amount of £374,000. The question then arises; Why, in the face of present severe exchange restrictions, has the assets position made such a poor gain compared with that at the same date a year ago, when the exchange market was unrestricted? The fact that imports are still running at high levels does not affect the position, for allowance has been made for them in the assessment of the favourable trade balance. _ It is also clear that the “ flight of capital ” which has been talked about so much must be on a smaller scale this year than last. The reason why sterling funds fail to keep pace with the trade balance has never been officially explained, but. the possibility that they are being earmarked to pay for essential services not yet imported cannot be ruled out. Certain retail goods, raw materials for manufacturing industries, and primary production requirements such as wool packs, sheep dip, and the like, are essential for the maintenance of the nation’s livelihood. Interest payments must also be provided for, and public works and railways make demands upon overseas funds to an extent unrevealed to the public. If funds are being made available in advance for such services it is not surprising that sterling exchange is less than it should be. Neither is it surprising that Mr Nash should have told a London audience last month that he held out no hope of any alleviation of the financial stringency until 1941.