MONEY AND BUSINESS AFFAIRS

Manawatu Standard, Volume LVI, Issue 201, 15 July 1936, Page 2

MONEY AND BUSINESS AFFAIRS

BANK OF ENGLAND GOLD. (By H.J.K.) The Bank of England continues to add millions to its gold reserve, and the following figures are interesting:— Gold Reserve

has added £17.100.000, or at the vatc of about £4,500.000 per week. This is not due to the increase in circulation for the circulation in the five

The increase n the past four weeks has been £10.000,000, as compared with the. increase of £17,000,000 in the gold , reserve. What the reason is tor this seeming haste to increase the gold reserve is heyond us out liere to explain. It may be duo to several ponding possibilities. First there is the war fever which appeared to have seized Germany, but which, fortunately, now seems aoating. And in any case, whom is she to attack? If France she will; have Russia and Czechoslovakia, and probably Belgium and Britain against: her. Hitler is meantime providing the i German peoplo with two major diversions, one being the Olympic Games, which will be followed by Jew baiting. AVe think war can be ruled out for this year at least. It may be tho desire of the bank with the consent of the Treasury to provide the money market with funds. The bank pays for gold with its notes, but is not obliged to redeem its notes I in gold. Thus in the four weeks tho money market has had £17.000,000, of which £10.000,000 is actually in circulation. The bank is obviously bent on maintaining a cheap money market which enables industry to borrow at cheap rates. It may be also that the British Government contemplates issuing another conversion loan, or is about to fund some of the floating debt, but what is most likely is the issue of a loan for defence purposes. Another possibility is inflation in tho United States, which is brought nearer by the distress caused in the farming areas of so many of the States. FRENCH “BABY BONDS.’’ These bonds are termed “baby” Irecause they are issued for small amounts like savings certificates lor the purpose of attracting tho small French investor,. mostly the peasants. Tho French peasant is noted for his saving habits and his propensity to hoard. The repeated crises suffered by the Bank of France through withdrawals of gold have been mainly due to the I peasants, and it is hoped that these baby bonds will see some of the hoarded gold returned to tho bank. At one time it was thought that France must abandon the gold standard, but the fear of that has passed, and the Bank of France has been able to reduce ; its discount rate to 3 per cent. The French Government is badly in need of funds. It has borrowed heavily from the Bank of France, and it will be remembered that earlier in the year £40.000.000 was raised in London on Treasury bills with a currency of nine months. France has had to spend largely on her fignting forces to keep pace with Germany and Italy. RESERVE BANK.

The return of the Reserve Bank of New Zealand for the week ended July 6 shows minor movements. Sterling exchange shows a decrease and now stands at £22,120.877, but no importance need be attached to this. Ajnrked changes in the figures may be looked for next mouth when tho guaranteed prices scheme is in operation. There should be advances to State undertakings of substantial amounts, but as the dairy produce is sold at Home, the London funds should increase and flic advances be reduced. The bank has not yet discounted any commercial or Treasury bills but may bo doing so next month. July saw the beginning of higher wages, and rising commodity prices. August will witness financial movements quite new to the country and in September the 40-hour work week will cause further disturbance, and perhaps a further advance in commodity prices. But as traders say there is more money about, and as yet there has been no appreciable curtailment of purchasing because of the rising prices. The racing clubs j* re not only an index of the gambling spirit, hut they also indicate the volume of funds available for pleasure expenditure. The racing clubs are doing well and should continue to prosper for some time to come. LOAN CONTRACTS.

The capitalist, financier, or trustee, who lends money to a Government, is in a peculiar position. He parts with his money to a Government and all he has to show for it is a sera)) of paper called a bond, and he must have absolute confidence in the borrowing Government, to accept its word. Faith or confidence is at the back of such loans —it is the very essence of them —and the borrowing Government must' justify that confidence. The Ruder ekpectshis interest, to be paffl on due date, and the principal on the maturity of the contract. He is not concerned with the price level of commodities—all he wants is the contract, freely entered into on both sides, to be strictly observed. That is why the recently apparent simple statement of tire Prime Minister caused so much disturbance in the London money market. Yet when one looks at the matter from the- viewpoint of the London money market, the agitation, can he understood. Many capitalists and trustees lent New Zealand' money and looked upon the annual interest a? their annual income, and the people get a shock, or thought they did, when it was announced that the Minister of Finance would like to negotiate for an adjustment of interest. Hon. AV. Nash will probably strike a further reassuring note when he arrives in London, unless, indeed, he decides that the wise course is to make no further reference to the subject.

Week ended £ Ju lie 10 208,500,000 J tlllO 17 211.800.000 June 2-1 210,300,000 J uly 1 221,100.000 J uly 8 225,600,000 In the course of four weeks the bank

weeks was as follow — Circulation Week ended ' £ June 10 433,000,000 June 17 432,000,000 June 2-1 434.800.000 July 1 439,000.000 July 8 443,100,000