EXCHANGE CREDITS POOL

Hawera Star, Volume LI, 20 February 1932, Page 7

EXCHANGE CREDITS POOL

LATE EDITION

POSITION OF THE BANKS ACTION TO AID STATE MANY ERRONEOUS ASSERTIONS. CHAIRMAN'S EXPLANATION. (By Telegraph —Press Association.) WELLINGTON, Rob. 20. The following statement has been made by Mr. T. Grose, as chairman ot the Associated Banks: . “There seems to be a good deal ot misunderstanding and many erroneous assertions regarding the relations be"twooii the Government nncl the banks in the matter of the licensing ot exports and the ‘exchange pool and as to how the banks came into the scheme and their reasons for giving support. The Government, on being faced with the necessity of meeting its debt service abroad without overseas loan assistance, requested the banks to undertake to find. London funds to help it meet immediate obli-l gations there and to ensure its being; able to meet its interest and debt service in London during this year, liie latter commitment is about £8,000,000, per annum and the renewal of over £4,000.000 in Treasury bills about to fall duo had to he arranged without delay, but this could not be done unless‘the banks immediately undertook to meet the Government requirements. “The Government intimated to the banks that it was a matter of urgent necessity to ensure provision ot the requirements. As the banks could not ] safely undertake this in the ordinal 5 course they stated that only Joy the licensing of exports and putting the funds through them could they undertake, so far as London funds would permit, to meet such heavy obligations for the Government in the interests of the whole country. “Following this the Government decided to license exports anu the banks believe that had they not agreed to help as above stated the; Government itself—so urgent was the matter—would have had no alternative, but to seize all export funds and handle them on behalf of all concerned. “The possibility of getting exporters voluntarily to contribute the funds required by the Government was fully considered, but it was decided the method adopted was the only one possible under the circumstances. “It has been asserted by many that this necessity to license exports to provide the Government’s requirements proves that the exchange rates would otherwise have risen and that th <?} arc pegged at an artificially low rate on account of the banks having a monopoly of the exchange funds, 'those who make such an assertion do not seem to appreciate the fact that the, decision to bring in the regulations: did not turn on the question of ex-| change rates, present or future, but rested entirely on necessity for having, a definite and sound basis on which the j banks could reasonably see their way j to accept the responsibility of the undertaking to provide the Government s requirements so far as their funds peimitted. The export licenses order is a price that had inevitably to be paid for this safeguard which was essential, not only in the interests of the Government and the banks, but also in the interests of the whole country. No commitment was mad© regarding ex- 1 change regulations and the banks continue 3 their regular practice of what is; believed to be a true and fair rate and 1 while this is in accord with the trade, position the rates cannot be said to, be pegged. , , “Practically all last year the bank 1 telegraphic transfer rate on London was 10 per cent! premium. If this rate had been too high or too low the! outside rate would have shown a marked divergence for there was a considerable outside market then, but . when the London funds were much in demand the outside rate was only slightly above the bank rate and towards "the end of the year, when London funds were not in such demand, the outside rate was slightly below the hank rate. “Taking this into consideration and also that a steady rate is more equittable for contracts than too sensitive | fluctuation it is clear that on the basis of supply and demand the bank rate j was correct. Trade figures for 193 U showed an excess of exports of a little i under- £2.000,000 which was altogetm I er insufficient to cover the interest and debt service. Early in 1931 the rate was increased from £5 to £7 10s and a little later to £lO premium winch , rate has continued to increase. The rate was mainly to restrict imports and the calendar year 1931 showed an excess of export of over £10,000,000 which, though still insufficient, was a strong move in the right direction. “A° carefully, prepared estimate for 1932 indicates an excess of exports of some £14.000,000 which is sufficient to cover the Government and local body requirements. This is purely an estimate, but in the absence of definite evidence to tho contrary there seems no reason, on the present and probable future trading position, why the exchange rate should be raised. “It is recognised that the carrying out of the export regulations causes manv difficult!’*.? and perplexities, but the banks are doing tlie utmost to cause as little inconvenience as possible to individuals as well as to the community at lai-ge.”