Manawatu Evening Standard. MONDAY, DECEMBER 1, 1924. THE EXCHANGE ISSUE AGAIN

Manawatu Standard, Volume XLIV, Issue 1180, 1 December 1924, Page 4

Manawatu Evening Standard. MONDAY, DECEMBER 1, 1924. THE EXCHANGE ISSUE AGAIN

Various suggestions have been made to get over tlie exchange business, which is assuming somewhat alarming proportions. The Leader oi the Opposition. the Hon. T. 41. Wiliqrd, who returned the oilier day from a short visit to Australia, lias brought with him a suggestion which is certainly not unworthy of consideration by those in authority, although, in the first instance, it may not have that appeal to New Zealand financiers which its merit appears to demand. The suggestion embodies the ideas of a well-known Sydney financial authority who formerly held the position of manager at the head office of the Bank of New South Wales in Sydney. As pointed out on several occasions, it is impossible, under existing conditions. to obtain gold from London. Its transfer thence to Australia or New Zealand. Mr Mcßae (the authority referred to) says is out of the question. Thus (as lie very truly points out) money in London is not money in Australia'. Briefly, he suggests that the transfer of a portion at least of the national indebtedness should bo made front London to Australia (and Mr Wilford thinks the same tiling could be applied to New Zealand) by the flotation locally of loans which could be used to offset the amounts held in London by the banks pn behalf of both the producers and the Government of of the respective States from which London loan moneys could be paid off. In the case of Australia, Mr McRae points out- that the wool, wheat, sugar and metal industries of Australia will show net profits well over twelve and a-lialf millions during the next five months, and lie advocates the repayment of live millions per month for the next liye months, or a total repayment ol' twenty-live millions. London funds, Mr Mcßae says, arc now at a discount of 4 per cent., so-if loans were issued in Australia at, say, £96, the proceeds of each £9O bond would pay off £IOO in London, and in this way the surplus funds held there on behalf of Australia could be utilised to advantage. It would, he considers, pay the farmers and all concerned to subscribe to the loan, ns a solution of the present difficulties would at onc-o create better local markets with immediately beneficial results. Bonds purchased at, say, £9O (he says) could he liquidated in Australia, if necessary, at little or no loss, and the loss, if any, would be covered by the gain. 'There would he no increase in the total debt,, for the loans there would liquidate the loans in London. He further suggests the release of additional notes alter consultation with the hanks, without any sot date of repayment, and advocates the reduction of accumulations in London funds by the repayment of twentyfive millions at the rate of five millions a month, for five months. Mr Wjlford is evidently enamoured of the idea, which could of course be applied in New Zealand, though to a more limited extent. ■ Some nine millions, it is stated, are held in London by the Bank of New Zealand, and these moneys, Mr Wilford points out, are said to be earning no more than 3} per cent., while the fanners and business houses in New Zealand are clamouring for advances. To bring out that nine millions, he says further, would cost tho Bank of New Zealand considerably more than four per cent., so that the' bank would lose heavily on tho transaction. The excess of exports over imports merely accentuates the position, because the greater the excess the more money piles up in London, whence it is not easily transferred to this country. It will not

help but rather add to the embarrassing nature of the position if the Government, which has taken authority to borrow seven millions, five millions of which is to be applied to the Advances Department and the other two millions to public works, floats a further loan in London, as the rate of exchange is' likely to be further increased unless that money is expended in additional imports, which is not altogether desirable. THE EFFECT ON INTEREST RATES. Mr Mcßae’s suggestion in regard to the flotation by the Commonwealth of loans to the amount of twelve and alialf millions has, however, one great drawback. The Commonwealth, it is stated, luis issued in London the prospectus of a new loan of six millions at 4J per cent., which has been underwritten at £97 10s. To float loans in Australia at £96, bearing interest at six per cent., would necessarily tend in the direction of maintaining the present high interest rate. Ihe New Zealand Government, both during and since the war, has been endeavouring to keep interest rates down, and it is to its credit that, all through that period, although the fact has not been so generally or fully recognised as it should have been, money has been cheaper in New Zealand than in Australia. At the present time the New Zealand Government is offering five-year debentuies “over the counter,” bearing interest at 51 per cent. It would, therefore, be a mistake to place loans on the local market at a higher rate of interest than the Government is now offering, and from what we gather of the feeling in financial circles in New Zealand, such action on its part would be regarded as a very serious mistake, but one which is not likely to be made if there is any sort of consistency in the attitude of the present Minister of Finance (Mr Massey), to whom is primarily due the credit of keeping interest'rates as easy as. possible. It would be interesting to have MrMassov’s views on the matter, especially as' there is a growing opinion that borrowing ill London under existing circumstances is unsound, and that as far as possible moneys required for public works and other State purposes should be obtained from within the Dominion and importations should be reduced where the trade balance is against ns with creditor nations such as Australia and the United States. It is of interest to recall the remarks made bv the acting-chairman of the Bank of Now Zealand (Mr William Watson) at the annual meeting of the shareholders in June last, when that gentleman, alluding to the difficulties connected with the transfer of moneys from and to New Zealand, pointed out that the transfer of surplus moneys from London to Australia, where money was greatly needed to settle the adverse balance of our trade with the Commonwealth, had lately been effected on extremely unfavourable terms to us, so that the purchase in New Zealand of exchange on London is by no means so profitable as _ some critics appear to think. Mr AY atson was, of course, referring to the bank when speaking of the extremely unfavourable terms which were then operating. So far as New Zealand was concerned, however, Mr Watson pointed out that the exchange question alone presented difficulty. ' “Australia (he said) lias for sumo time, past experienced even higher exchange rates than the Dominion, and has also suffered from a shortage of currency.”