FUNDS IN LONDON.

Manawatu Standard, Volume LVI, Issue 165, 13 June 1936, Page 8

FUNDS IN LONDON.

SIGNIFICANCE EXPLAINED. “FOUNDATION OF CREDIT STRUCTURE.” “There still appears to be a lack of understanding in some quarters as to the nature and significance of the London funds at ’present held on account of New Zealand,” states the board of directors of the Reserve, Rank of New Zealand in the annual report. “To regard them as lying idle is obviously incorrect in various respects,” the report states. “In the case of a country like New Zealand, which is on a sterling exchange standard, London funds serve the same purpose as do the gold reserves of countries on the gold standard; that is, they constitute the i foundation upon which the credit 'structure of the Dominion rests, in addition to providing . a reserve available for meeting commitments overseas in case of need. Moreover, the full equivalent of the London funds in New Zealand currency has been made available in the form of purchasing power in the hands of the public in the Dominion; and until required for expenditure overseas, this purchasing power is available for use within the Dominion.” Discussing the ratio of gold to sight liabilities, the board explains that the Reserve Bank’s ratio stood at 98.46 per cent, at the end of the financial year. The lowest point touched during the year was 96.56 per cent. A table was quoted showing that the highest point reached in Switzerland in 1935 was 96 per cent., in the Netherlands 81 per cent., in the United States 75 per cent., and in ! France 81 per cent. “But whereas tho reserves shown for these gold counj tries were entirely held in the form !of gold, which is unproductive, the bulk of the reserve of the Reserve Bank is revenue producing,” the report states. It had to be remembered, also, that tho Dominion’s sterling reserves ficcumulated at an abnormal rate during 1933-31 and were therefore more than ordinarily liable to be drawn upon in respect of deferred purchases overseas. Moreover, the Reserve Bank’s figures being relatively small, the effect per million pounds, produced upon the ratio by tho replacement ol sterling assets by assets in New Zealand. would bo relatively great.