THE H.B. TRIBUNE FRIDAY, DECEMBER 14, 1923. BANK EXCHANGE RATES.

Hawke's Bay Tribune, Volume XIII, Issue 308, 14 December 1923, Page 4

THE H.B. TRIBUNE FRIDAY, DECEMBER 14, 1923. BANK EXCHANGE RATES.

In the report furnished us from Wellington of the chairman’s address at the Bank of New Zealand’s half-yearly meeting held this forenoon more space than we can afford to give it to-day is taken up with a discussion of the question of bankers’ charges on remittances back and forth between London and the Dominion. Opportunity may be taken, however, to make a summarised reference to it here. The manifest, in fact the declared, purpose of the chairman, Sir William Elliott, is to exculpate the banks from the complaints that are made against them of excessive .charges under this heading. In undertaking this he goes into a good deal of rather technical detail that is not fully understandable by the ordinary citizen, nor, perhaps, by a goodly proportion of commercial men. The basis of his apologia seems to be that the admittedly high rates of bankers’ exchange with London are due to a serious lack of balance in the exchange of commodities between the Old Country and the Dominion.

At present, it would seem, there is a large accumulation of New Zealand funds or credits in London due to the fact —discussed a day or two back in this column—that the value of our exports to Great Britain during the last ten months has been very largely in excess of that of the imports we have drawn from that country. These funds in the hands of the banks can, for reasons given, be invested by them only on short-date securities at a very low rate of interest—somewhere about 2 per cent per annum—awaiting the time when they may be required for expenditure at that end. Out of these earnings, too, a high rate of British income-tax has to be paid, thus reducing the net result to something very small indeed, as

compared with the returns that could be secured were it possible to make the accommodation available in the Dominion instead of London. The only people who are advantaged by this state of affairs, says the Chairman, are the short-date borrowers in London, where there is such a big surplus of loose money, and the New Zealand importers who have goods bought there to be paid for. The chairman does not indicate how far the over-importation which, in another part of his speeeh, he deprecates has tended to remedy the position, but presumably it should have eased it somewhat, and would have done so to a greater extent had not so much of it come from foreign countries.

We have the chairman’s emphatic, indeed rather indignant, denial that the high buying rates of exchange have been brought about by the banks combining to force them up with the object of making large profits. He declares that high rates of exchange, either in one direction or the other, are not in the best interest of banking institutions. “High rates,” he says, "cause the greatest dissatisfaction; they penalise business; they build barriers and dam that free flow of finance which keeps the wheels of industry revolving. . . On the other hand, a stabilised exchange with a relatively small return for services rendered, is the state most desired by bankers.” The problem is made all the more difficult of solution, it appears, because the pre-war recourse of making shipments of gold to readjust the balance from time to time is not now available, and no satisfactory substitute for it has been devised

Allusion is made to the proposal of an eminent English banker, Mr. J. F. Darling, to institute a series of Empire Currency Bills to take the place of gold. But this idea as we had learnt already, failed to secure approval when considered at the recent Economic Conference, where "it was decided that it was neither necessary nor desirable.” At the same time, however, the chairman frankly quotes the Conference as also "expressing the opinion that bank charges for buying and selling sterling appear to be unduly high in some cases and should be capable of reduction.” But, having done this, he also quotes. Mr. Darling as saying' that "the solution of the exchange problem is beyond the power, as it is also outside the functions of the banks. It is the function of the Governments concerned to provide a connecting link and then, having clone so, the finance of trade may be left to the banks to carry out.” There Sir William appears complacently content to leave the matter, to the no. great satisfaction of the banks’ clients sending produce or otherwise doing business abroad. Probably nothing more should be expected of him personally, for, though the nominal head of this our biggest banking institution, he cannot in any way Be cal Ted a banker as the term is understood in the Old Country. A shrewd business man, no doubt, in a general way, he is, so far as his official position is concerned, merely a quasi-political figurehead without any such intimate knowledge of the intricacies of the world’s financial and commercial workings as would alone qualify him for a like position at Home, and as needs to be brought to bear on the subject under discussion. But one would imagine, despite his assurances, that even he would not take the situation quite so philosophically were the banks, like some of their customers, actual and heavy losers by its persistence. In that case, we fancy, the really big and competent men of finance would be pressed more urgently at least to find and formulate and agree upon some practical emeliorating scheme to put before the Governments on whom they now apparently seek to cast the responsibility for action.