FINANCIAL CENTRE

Hokitika Guardian, 1 October 1929, Page 7

FINANCIAL CENTRE

LONDON STILL RETAINS PREEMINENCE. CLEARING HOUSE FOR THE WOULD. LEADERSHIP UNDISPUTED WELLINGTON. Sept.-29.

“England’s early and continued ■leadership in international trade and her pre-eminence in shipping caused drafts on London Ix> have the widest and readiest acceptance. London became known as the ‘monetary centre of the world.’ . In spite of the effects of the., war and the rapidly growing importance of the Lniied States money market, I think we 'may still claim this distinction for London.”

The above tribute to the financial stability of England was paid last evening by Mr AAU D. Hunt, in an address to the members of The Wellington Accountants Students’ Society upon “Financing New Zealand Exports.”

“The bill on London” declared Mr Hunt, “is still in request throughout the commercial world. If we import wool-packs from India, motor-cars from America, or silks from Japan, we probably pay by draft on London. The goods we sell to foreign cuntries will most likely be paid by drafts on a Loncjon bank. “The London money market is often spoken of as the world’s clearing house. It is not composed of any one bank or banks, but is made up of many organisations.

THE BANKERS’ BANK

11 At the centre of the market geographically and otherwise stands the Bank of England. It acts as banker to all other banks accepting their deposits and holding their reserve funds; as banker to the British Government, foreign governments, companies,, and individuals. Being the ‘bankers’ bank’ it is the bolder of the ultimate cash reserve of the country, and may he likened to an immense reservoir into which unemployed funds are constantly pouring, and from which they as steadily flow when they can be used to advantage.

BUYING AND SELLING BILLS

“Next we have the English joint stock and private banks. These banks’ business is on the same lines as our New Zealand banks, and their unemployed fund are the main source of supply to the money market. They obtain their funds mainly from depositors. Finally, there are tlie bill brokers, discount houses, accepting houses and various other financial organisations who form a very important section of the mai’ket. They specialise in the buying and selling of New Zealand bills. In New Zealand the banks negotiate and finance our hills until the due date but the London banks, as a rule, do not deal dirert with the buyers and sellers of bills, excepting their own regular customers. These operations are almost whollv conducted through the bill brokers, who act as go-betweens. A very large amount of bill business in London is done by the discount and acceptance houses.

“The private ban I '* in England do not separate in their balance-sheet their bills discounted from their ordinary advances to customers. The joint stock banks however, show them separately, and the total bills discounted from their ordinary advances to customers. The joint stock banks, however, show them separately, and the total bills discounted as shown hv their balance-sheets at. the end of 1928 amounted to £259,250,704.

SAYING OF THE PENDULUM

“Practically the whole of our exports are paid for in London, and the money is" used to pay for our imports both from England and from other countries. But the value of exports month by month will not equal that of our imports. Some months we will 'be exporting much and importing little, other months it will be just the opposite. Further, the drafts drawn by us and on us Avill be for varying terms. It follows, then, that our hanks in London will at times have large amounts in hand, which, of course, they cannot afford to have lying idle. At other times they will have heavy calls on their funds to finance our imports. It is in these cases they seek the assistance of the London money market ,where commercial hills and securities can always he bought or sold at a minute’s notice.

THE DAILY BUDGET

“The manager of every hank in London makes up what is in effect a “budget” in Ill's finance hook each day. He estimates his receipts and paymen's. On the debit side will appear his balance on hand from the previous day. Then will follow the amounts he expects to receive during the day. On the credit will go the expected payments. The difference between the two sides will be the amount on which the banker has to work. Jf it is on the debit side he can afford to lend money to the market at call or short notice. If a credit he knows he will require funds, and he will call in his loans or sell bills. “The London Joint Stock Banks can

usually gauge their approximate requirements lor a week or ten days aliead, and are in a position to know whether they may lend to the market at call or short notice or whether for a week or more. The London branches of the Foreign and Colonial branches cannot usually foretell their require meats so closely. They often have unforseen demands upon them, and consequently tuey genmally prefer to lend out any idle money from day to day only. This money is lent through brokers on the security of first-class acceptances or short-term, gilt-edged securities. Treasury bills are anoihei form of investment for bankers’ temporary surplus funds. They are absolutely gilt-edged, and can be disposed of oil the m a met at any time.”

HOAV INTEREST IS REGULATED. “The rates of interest for loans on the London money market vary from time to time; in fact, for call or short loans from day to day. Like all commodities the rate is regulated by the supply and demand of funds, and this in turn is effected not only by local conditions, but by conditions in other countries.”

HOAV NEAV ZEALAND’S EXPORTS ARE FINANCED.

“New Zealand’s exports are finan'ced by dralks against shipment. These are bought by the banks and sent to their London branches for collection. The banks carry the finance during transit. ALer arrival and the due acceptance of the hills the banks have the option .Ox selling them, on the London money market. This they will do if they require funds to finance our imports oi goods or our invisible imports, e.g., interest on Government loans, drawings by New Zealand travellers in England divided payments to English shareholders in New Zealand companies, etc. The finance is then undertaken by one or more of the many factors in the London money market. In due course the goods are sold to the consumers and paid for,'the bills fall due and are paid. Eventually the seller receives and the buyer pays, hut in between the producer and consumer there have been probably thousands of people indirectly, concerned in the financing.”

THRIFT AVILL HELP

“AA’e possibly do not always realise that any money we as individuals save will in all probability help indirectly in financing the production of our primary products and our consequent exports. J.l we place our money on deposit" with the banks take up rural intermediate credit bonds, increase our life insurance, or invest it in many other ways, we are. indirectly helping our exports.”