EXCHANGE SURPLUS

Hawera Star, Volume LIV, 3 May 1934, Page 5

EXCHANGE SURPLUS

POSSIBLE INTEREST REDUCTION PROFESSOR TOOKER’S COMMENT CHRISTCHURCH, May 2. The relationship between a possible reduction ctf interest rates in New Zealand and the future handling of the exchange surplus of £20,000,000 held by the Government in London a A mentioned by the Minister of Finance, the Rt. Hon. J. G. Coates, was explained to-dav by Professor A. H. Tocker. Mr Coates said in Auckland yesterday that there might be a reduction in interest rates, but before forecasting he preferred to wait until the Reserve Bank was functioning. Mr Tocker amplified this by indicating what was likely to be the part of the Reserve Bank in dealing with tlie present surplus in London and the reflections of this on the amount of money available for advances from banks in New Zealand.

“It is provided in the Reserve Bank legislation that the hank must both buy and sell exchange,” said Mr Tocker. “Mr Coates has said that the Go-vernment is l holding £20,000,000 in exchange funds in London. The obvious thing for the Government to do as soon as the Reserve Bank is established is to sell these funds to the bank and to receive in return funds hi New Zealand. The Government then will most probably use these funds to ■pay off Treasury bills placed in New Zealand to buy London funds. “Since the banks most probably hold most of these bills, they will find themselves acquiring a certain amount of additional funds on hand available to lend to customers ill the Dominion. For some time the demand for money on advances has been small, and advances have been decreasing while deposits have increased. It is difficult to see how the banks will be able to lend a substantial addition to their funds in New. Zealand if interest rates are not made more attractive. In Australia. a relative abundance of funds has developed, and recently the rates of’ interest have been reduced. The prospects make it appear likely that reductions mav be necessary in New Zealand. Should the rat© for advances be reduced it is to be expected that the rate for fixed deposits will also be reduced. This" should' lead to some transfer of funds from fixed to free deposits. “Both this movement and the increase in advances would tend to stimulate the use of a larger volume of money in business. This in turn would stimulate purchasing power. Should the imports consequently improve far enough New Zealand might be paying overseas, more than she is receiving from overseas. In these circumstances part of the surplus in Loni don might be used up in paying for 1 the additional imports. It is known. | too, that substantial amounts of funds 1 have been left in New Zealand by i overseas importers, wlio have hoped i to make a speculative gain should the exchange fall. These funds are p«+ | likelv to he Eft here indefinitely, and !If once people were persuaded that speculative gains of this kind were unlikely to accrue these funds might lie repatriated and the surplus funds in London again appreciably reduced.”