THE H.B. TRIBUNE WEDNESDAY, DECEMBER 9, 1925. BORROWERS AND SORROWERS

Hawke's Bay Tribune, Volume XV, Issue 214, 9 December 1925, Page 4

THE H.B. TRIBUNE WEDNESDAY, DECEMBER 9, 1925. BORROWERS AND SORROWERS

Although it has been said that the New Zealand Government will not for some months yet be on the market for any outside loan money, this may depend upon tho success of the internal borrowing now going on, and on which we have had no recent report as to the response. This process will certainly not be favourably affected by the serious drop in the selling values of our | main exports, a misfortune that ; may compel resort to extraneous i flotations in order to secure funds for the State Advances and Public : Works Departments. In any event, ' it will be of interest to note how colonial emissions in announced early contemplation may fare. The first of these would seem likely to ' be that, mentioned in a Melbourne i message yesterday, of the Austra-1 lian Federal Loan Council, acting j for the Commonwealth and possibly ' for one or more of the State Governments. It will have been noted that this issue of five millions is to be offered at- par with a yearly interest rate of 57 per cent. This ' looks very much as if the Australian Finance Minister had been given a definite hint that something better than tho hitherto ruling standard return of 5 per cent was necessary ■ in order to secure a full subscrip- i tion. The recent- raising of the Bank ■ of England rate from 4 to 5 per cent ’ has no doubt a good deal to do with the condition thus imposed on tho Australian borrowers, presumably by the London underwriters. This rise, we were told, was primarily induced by the necessity for putting a check upon what was regarded as a threatening outflow of Britain’s i gold reserves, to which no less than ■ 19 million had been lost since the rate was brought down from 4| 1c» 4 per cent at the beginning of August last. Other temporary causes were cited, but this was doubtless the main one. Tn any ' case, the obvious result is that colonial government loans can just I now be placed in London only at an | interest rate appreciably above that, wo have to pay on our own most ; recent State borrowings. Beyond this question of interest ! rates lies the still more serious ! question as to the amount of capital |

really available in London to fill the demands at home and from abroad for “fresh” money. Expert opinions on this point have been expressed thati differ so widely as to leave great doubt as to which may be the more reliable for our guidance. Possibly as dependable an authority as any is the “City” editor of the London “Times”, and he, while discussing the so-called embargo against granting loans for abroad, says in one of the latest numbers to hand: “There appears to be much misapprehension here and in Australia as to the cause and effect of what is called the embargo on foreign and Colonial issues. It is erroneously assumed that it has simply sterilised for the time being a vast sum of accumulated capital which is eagerly awaiting investment abroad. There is no such accumulation.” It is then explained that the embargo was imposed before the restoration of the gold standard because it was feared that excessive lending would cause a fall of the exchange, and. thus hinder the return of the pound sterling to parity. After the restoration of the gold standard, the embargo was strengthened by its application to Colonial issues, since it was feared, owing to the pressure of Colonial borrowing, that, if no such check were placed upon lending abroad, loans might take the form of an export of gold, thus reducing supplies of credit and causing a rise in the Bank rate. There would, we are told, have been no embargo at all, either before or after the restoration of the gold standard, if there had been no question of London’s ability to lend all that was likely to be demanded of it. It was feared, however, that the supply of new capital was wholly insufficient, and it was considered desirable to avoid the monetary disturbance that any attempt to supply the demand would bring about. Tn other words, it has been an embargo against borrowers and not against lenders. The. lifting of the embargo has been followed by just such movements as the “Times” foretold, an outflow of gold and the raising of the Bank of England rate. As it warned us would be the case, the recent reopening of the market to colonial borrowers docs not mean that- there is anything like a plentiful supply of funds from which to borrow. This is a thing that it is just as well for us to bear in mind having regard to our own future requirements, even if not pressing for a. few months yet, for Ihe conditions of British export trade are not such as to suggest any rapid accumulation of new lending money. For this reason word of the. fate of the proposed Australian issue, will doubtless be awa i ted v. it h something 1 ike anxions interest by our own Finance Minister. A Melbourne message just to hand as this writing is being closed says that tho internal operation for the conversion of 67 million of Federal war loans falling due this month has been successfully carried through, the amount- being over-subscribed. This suggests the possibility that it may be intended to place the new five million loan on the local not on the London market. Tn that case we shall, of course, got no indication as to the receptive capacity of the latter, and tho offer of the higher rate of interest may be explainable otherwise than has been above’suggested. The probabilities, however, would point to a London flotation, as the big conversion process has been spread over several months and has from time to time occasioned not a few misgivings as to its ultimate success. In fact, our latest Austra- ! lian exchanges show that even within eight days of the closing of the lists yesterday there was still a substantial amount for which provision had to be made. No doubt, therefore, it is with a sigh of relief, not with any crow of exultation, that Dr. Earle is able, to make the announcement just cabled, and in all likelihood the over-subscription will prove to have been not very groat.