EXCHANGE RATE

Manawatu Standard, Volume LII, Issue 69, 20 February 1932, Page 7

EXCHANGE RATE

Mi necessity for pool. :;|| CASE FOR THE BANES. »RNMENT’S REQUIREMENTS. Per Press Association. I»p WELLINGTON, Feb. 20. following statement has been H by Mr J. T. Grose, as chairman 19nshe Associated Banks:— seems to be a good deal of jHHji(|i\derstanding and many erroneous regarding the relations beijHli the Government and the banks 'matter of licensing of exports ‘exchange pool,’ and as to haw BeMMbSnks came into the scheme and jflflgjl&easons for giving support. The /fwfliSMmient, on being faced with the mgmmfoy °f meeting its debt service {yJßipji# overseas loan assistuested. t-ho banks to .undertake funds to-help it to meet ;;|f|ojHpiediate obligations there and being able to meet its in- ■ debt service in London durHHtJ.,-* year. The latter commitment, millions sterling per annum, i renewal of over four millions in Treasury bills about to fall #*®Sad to be arranged without delay, could not be done unless the WBSMa immediately undertook to meet SlUiGovernment requirements. The mHMjrnment intimated to the banks it was a matter of urgent necestO ensure provision of its requirewmHhW- As the banks could not safely ®®P>rtake this in the ordinary course, HK stated that only by the licensing SaHnlkports and putting funds through could they undertake, so far as funds would permit, to meet SHlpi heavy obligations for the GovernilKt and in the interests of the whole HaMßHlPollowing this, the Government deto license exports and the banks SBHnevo that had they not agreed to ■Wmjnp as above stated the Government jJjßjjgtlf—so urgent was the matter — «ld have had no alternative but to all export funds and handle them. gHKbehalf of all concerned. BHHfThe possibility of getting exporters MljMluntanly to contribute the funds rejjlj&jued by the Government was fully j&SHikidered, but it was decided that the adopted was the only one pos{v«Ue under the circumstances. IIIIfWOULP RATE HAVE RISEN P, mj'lt has been asserted by many that HHnji necessity to license exports to promjSSk the Government’s requirements liHßßjyes that the exchange rates would gßSHerwise have risen and that they are fiPfeged at an artificially low rate on SmlMCOunt of the banks having a monoof the exchange funds. Those who IHpMte Buch assertions do not seem to jSjfifrjreciate the fact that the decision to Igßffintag in the regulations did not turn on mffibiqueetion of exchange rates, present §®§p-fqture, but rested entirely on the of having a definite and sound MljwiM-'Ton which the banks could reapffißibly see their way to accept the reflfUippsibiUty of undertaking to provide MSgiGovernment’s- requirements so far funds permitted. iffi|K<j|Xhe export licenses order is the that had inevitably to be paid |ffifflHp;his safeguard, which is essential, sSfißelbnly in the interests of the Gov-tt'Symo-nt and the banks, but also in IjUp interests of the whole country. No was made regarding the RKpehange regulation, and the banks ffijjSntinue their regular practice of what !|U|helieved to be a true and fair rate, Majid while this is in accord with the llfwikde position the rates cannot be said ||H§be pegged. Practically all last year |K I; bank telegraphic transfer, rate on was 10 per cent, premium. If pl|gs rate had been too high or too low HjHp'Outside rate would have shown a yiiSpked divergence, for there was a coniSrajEEitable outside market then. _ But 'wben London funds were much in deptmSiA the outside rate was only slightly the bank rate, and towards the Mfei'of the year, when London funds |||K: not in such demand, the outside ™ a slightly below the bank rate. i»™S)ting this into consideration, and W' that a steady rate is more equitfor contracts than a. too sensitive rfjjnfflEtuation rate, it is clear that on the of supply and demand the bonk mm was correct. MpIUTLOOK FOR THE FUTURE. HBBVphe trade figures for 1930 showed W. excess of exporta of a little under mHko millions sterling, which was altoraffiether insufficient to cover interest and jfflKbt service. Early in 1931 the rate was from £5 to £7 10s, and a lib ffipie later to £lO premium, which rate iftthas continued. The increase in the rate KraS/as mainly made to restrict imports, B«pd the calendar year 1931 showed an |S|sxcess of exports of over ten millions §jS*terling, which, though Btill insuffiffipjient, was a strong move in the right NBnirection. . Eg-v: carefully prepared estimate for §ijj.932 indicates an excess of exports of pome fourteen millions sterling, which Ipa sufficient to cover Government and Sjflocal body requirements. This is purely Sian estimate, but in the absence of deHfinite evidence to the contrary there «E»eems no reason, on the present , and H’probable future trading position, why jSjsshe exchange rate should be raised, fp “It is recognised that the carrying fjlpbut of the export regulations causes IfjVnnny difficulties and perplexities, but Igijwhe banks ai'e doing their utmost to iflcauso as little inconveienco as possible |||jto individuals as well as to the comU&iunity at large.” .