THE STRINGENCY IN THE MONEY MARKET.

Manawatu Standard, Volume XLIV, Issue 970, 20 March 1924, Page 4

THE STRINGENCY IN THE MONEY MARKET.

The cable from Sydney which we published on Tuesday stating that the Australian note issue is to be increased by approximately four million two hundred thousand pounds in order to cover the £6,000,000 advanced by the banks in 1920 to enable the Federal Government to make cash payments of the war gratuities in necessitous cases comes as an interesting commentary on the scarcity of money in the Commonwealth. The Federal Government issued war gratuity bonds to members of the Australian Expeditionary Force in 1919, which are now falling due, and to provide the required funds to meet demands totalling something like £19,000,000, a war gratuity redemption and conversion loan for that amount has been placed on the Australian market, interest being offered at 6 per cent, and the loan having a currency of three, five or ten years at the option of the subscribers. The somewhat curious feature of the Australian note issue is that it enables the Federal Government, by increasing the amount of Commonwealth notes outstanding, to take what are practically forced loans from the banks without paying interest on the sums borrowed in that way. On the 31st December, 1919, the notes outstanding amounted to £56,603,074, of which the banks were holding nearly £23,000,000 in £IOOO notes. On the 31st December last the note issue stood at £52,182,093, but the bank holdings, so far as the £IOOO notes were concerned, had been reduced by over £8,000,000 to £14,314,000. The Note Board having now decided to discharge its obligation to the bank in respect of the £6,000,000 advanced in 1920, will be simply passing on another £4,200,000 of paper money to the banks concerned, £1,800,000 having been already drawn upon by the banks. When it is remembered that, prior to the Commonwealth taking over the note issue, the twenty-two banking corporations located in Australia managed to transact their business on a note issue considerably under £6,000,000, and that they were holding in December last over £27,500,000 of Commonwealth notes, while the public held £24,625,491, it will be seen that the credit of Australia has been very largely strained by the operations of the Commonwealth Government. Much of the money represented by the fifty-two odd millions of paper outstanding has been either advanced to the State Governments or utilised for Federal purposes. It is true that the gold reserve has been maintained on a fairly satisfactory basis, being represented at the end of last year by 47.87 per cent, of the liability, but it is open tq question whether this easy method of.raising money at the expense of the banks has been really helpful to the people of Australia. The demand for money in the Commonwealth, both for public and private purposes, has, according to a Sydney paper, never been greater. One would-be borrower wrote lamenting his inability to borrow £SOOO from a bank on £20.000 worth of security because the bank had no spare funds for the purpose, and the paper recording this and similar statements pointed out that, unfortunately, money borrowed in England stays in England, because it is useless to bring British notes out to Australia, seeing that they are so much waste paper there. It is impossible to obtain the gold, which is alone acceptable, and convertible to the purposes for which a loan is required. An agitation has consequently begun in favour of the complete prohibition of the private export of gold and the purchase of the entire output by the Federal Government, the latter paying the market price in Australian paper money. At present, it is pointed out, the price is paid mostly in British paper money, or is taken out in goods. It is argued that if the gold was retained in the Commonwealth, it could be transmuted into currency, and would serve to buy only Australian goods and pay Australian wages, an.d that Australia would get the extra currency of which it is so much in need, and the extra would be remarkably well secured currency, much better than the old. The Australian banks hold deposits amounting to close upon £304.000.000, and of that amount they have advanced some £264.176,846 to the public, while on the 30th September last they were holding Government and local body securities to the amount of £53,298*820.