MONEY AND BUSINESS AFFAIRS

Manawatu Standard, Volume LVI, Issue 92, 18 March 1936, Page 8

MONEY AND BUSINESS AFFAIRS

CREDIT AND CENTRAL BANKS,

(By H.J.K.) What methods does a central bank adopt in controlling the currency and credit of a country ? There a.re times when it is necessary to stiffen the market and times when it is necessary to ease the money market. In a time when money is in plentiful supply and there is a tendency toward speculation, it may be desirable on the part of the central bank to check this tendency. It accomplishes this by selling securities. For example, if the Bank of England wishes to take funds off the market and so check speculative tendencies, it sells through its broker Government securities to the public. The position then is that the bank ha 6 the money and the public have the securities. The market has so much less funds to gamble with. If, on the other hand, the market is short of funds, many operators would, of course, borrow, but the bank would help the market by instructing its broker to buy securities. The position then would be that the bank has the securities and the public have the money. In one case the money market hardens through funds being taken off by the bank; in the other case the market is eased through the bank releasing funds. . . .. Such operations are only possible m large centres such as London, Paris, Berlin and New York.

, The Commonwealth Bank under a transparent excuse of testing the Australian market offered for discount on Monday £1,000,000 of Treasury bills at the fixed discount rate of 1$ per cent. Applications amounting to only £315,000 were received. The Treasury bills offered by the Commonwealth Bank were the property of the bank and not of the Federal Government. The effect of such an issue, if successful, would have been to denude the market of £1,000,000, which would go into the coffers of the bank, and this woidd tend to make money dearer in Australia, besides sweeping the market of the short-term funds which would otherwise be lodged with the trading banks and be available for accommodating the industries of the country. It was explained in Sydney that the effect of the issue would be a withdrawal of money from the market, a curtailment of the monetary resources of the trading banks, and so lead to a stiffening of the overdraft rate, if not a restriction in advances. The Bank of New South Wales, it will be remembered, responded to the action of the Commonwealth Bank by raising its interest rates for deposits, so as to prevent the withdrawing of deposits to be invested in Treasury bills. If the bills are for three months the interest rate of 1$ per cent, will not be attractive as the jßank of New South Wales is offering 2 per cent, for fixed deposits at 3 months. In any case this advance in the deposit rates must necessitate an adjustment upwards of the rates for advances.

RECIPROCAL TRADE PACTS.

At the annual meeting of the Wellington Chamber of Commerce, held last week, the Minister of Industries and Commerce, Hon. D. G. Sullivan,; who was present by invitation, gave the Chamber an assurance that early consideration would be given to the question of entering into reciprocal trade agreements with foreign countries. It was stated during the election campaign that such reciprocal trade agreements would be necessary for the success of the guaranteed prices scheme.

Trade agreements and new markets, like the theme in a symphony, have heen running through the history of New Zealand for the past fifty years. In 1886 there was some talk of finding new markets for the colony’s products, and there is still the same talk. It is quite a pimple matter to suggest trade reciprocity, but the authorities will find it a difficult problem. We must 1 first consider what we have to offey other countries as a basis for mutual trade. We have three main products, wool, dairy produce and frozen meat. Wool can be ruled out. for the staple enjoys a world market and even countries with h'gh prohibitive tariffs are compelled to buy wool. That reduces us to dairy produce and frozen meat. We can deal only with countries whose peoples are consumers of such products, and that reduces the scope to Europe and North America. Many efforts have been made to get an entry into Canada, but with indifferent success, and repeated efforts have been made to get the United States to take our butter and meat, also with indifferent success. That leaves the European countries. Europe is steeped in economic nationalism which is a development of the Great War. Economic nationalism means export the maximum and import as little as possible. Every European country profiting by the war is producing each within its own territory as much foodstuff as possible, as a sort of insurance to offset the risks of war. Even Britain is now safeguarding her dairying and meat industries. Under such conditions what country is there that we can sign up a trade agreement with? Some countries, Germany for example, have entered into barter agreements, under which the sales and purchases of one country must balance the sales and purchases of the other contracting party. Assuming that we could arrange such a barter agreement with sa.y, Japan, then in return for Japan taking a certain stipulated value of butter we should have to take to the equivalent value Japanese fabricated goods, and in doing so we would be replacing British ma.nufactures by Japanese manufactures, which would be a travesty of the slogan “Buy British Goods.” Britain is, and has always been, our best customer, and both our dairying and meat industries have been built up through her open markets. We seem not to have realised, or we refuse to recognise, that the war changed the economic outlook of Europe, including the United Kingdom. We are trying to offset this with subsidies, bounties and guaranteed prices. It seems that we must make new, real and sane economic efforts to meet the situation.