MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LVII, Issue 197, 21 July 1937, Page 4

MONEY AND BUSINESS AFFAIRS.

THE MONEY MARKET. (By ‘TLJ.K.”) The Australian Loan Cfiunfiil has sanctioned a loan of £16,000,000 for 1937-38, and this is about the average rate of borrowing in the last two or three years. The last loan was issued in May and the effective rate of interest was a few pence under 4 per cent., but it was a success because it appealed to people with small savings. Half of the new loan will be placed on the market early in December, but it depends upon the pending Federal election.

The thesis of Government borrowing is that the State is put into possession of spending power, which it forthwith spends, but more often squanders on so-called public works. Before the war Australia, like New Zealand, lound it convenient to borrow in London, and it was easy in those days to raise loans in London, but now there is an embargo there on lending. The prospective borrower must furnish the Bank of England with details of the proposed loans, and if the bank approves the loan can be floated, but not otherwise. Australia must approach the local market again and must compete with industry for the available capital. AVliat effect this new loan will have on the Australian money market remains to be seen, but the tendency must be to cause a hardening of rates. In that case a similar effect must follow in New Zealand, for the Australian money market does, to some extent, dominate money rates in New Zealand.

Now Zealand is spending lavishly on public works and housing, and is obtaining money from the Post Office Savings Bank, which, for the year ended March 31, showed an excess of deposits over withdrawals. In the ordinary course of affairs these surplus funds have to be invested, for the Government has to pay interest on the deposits. In addition, the Government increased taxation by about £4,500,000, and if that is not sufficient, it can call upon the credit authority—the Reserve Bank—with the consent of Parliament, to provide any sum required.

ARGENTINA’S DEBT. Argentina, as the result of good prices for wool, wheat, a lid other exported produce, has built up large overseas balances, and 1 these have been further increased by some flow of foreign Investments into the country. Consequently, there has been an accumulation of gold and foreign balances in Argentina’s favour. The Government has acquired these assets from tho Argentine holders with the proceeds of sales of Treasury bills. The inflow of capital and the exceptionally large export surplus accumulated during the first four months of the present year—estimated at about £49., 200,000 —have enabled the Government to convert a part of the external debt into internal debt, thus diminishing possible problems of foreign exchange transfer in the future. The repatriation and conversion of dollar debt, service on -which represented the most burdensome single item in the Argentine balance of international payments, has already resulted in substantial savings. LONDON MONEY MARKET. Notwithstanding numerous shocks the London money market maintains easiness. The note circulation of the Bank of England, though it has dropped £1,000,000, is still very high at £493,400,000, from which it is safe to assume that hoarders are still apprehensive of the political situation. The world recently was nearly at war, according to M. Blum, the ex-Prime Minister of France. Bankers’ deposits have gone up from £88,500,000 to £89,200.000, which is a very small increase. However, the position is sound and the Bank of England can meet any reasonable demands made upon it. The market rates for short loans, and the discount rates on trade paper are unchanged. .Business men in London have repeatedly urged the lifting of the embargo on foreign lending as a means of Stimulating foreign trade, but the Treasury has turned a deaf ear to such appeals. In the past Britain has provided many foreign countries with the means of payment, without making any stipulations as to the money being spent in Britain. France almost invariably makes such Stipulations, and so does America. With respect to war loans America insisted upon the money being spent, on American goods; and that enabled American manufacturers and producers to exploit, the Allies. The war debts helped to create scores of paper millionaires in the United States. Now war debts are among the almost forgotten things of American finance.

GOLD PANIC OF MAY. English papers recently to hand give particulars of the gold panic which was experienced towards , the end of May. On /June 3 the offering of gold in the London bullion market was a record for all time. Nine hundred bars valued at £2,552,000 were dealt with. In the ten days, May 24 to June 3, the gold sold realised £11,283,000,, a large proportion of which was taken by buyers on behalf of the Exchange Equalisation Fund. Feeling in London City was that anxiety over the future of gold had -reached a point which made it impossible to be disregarded, but opinions as to what should be done were most confused. The more sanguine disputants held firmly to the belief that tlie present price of gold-.would be maintained. The pessimists professed .to expect a depression of gold value. The gold question was said to present two main problems. One is what to do about hoarding, and the maintenance of the existing price of gold; the second is the problem of enormously . increased gold production and what is to be done about the futffre price of -gold. Opinions show that the first and immediate problem resolves itself into several sections. They are dishoarding, official American buying by the Exchange Equalisation Account, and possibly collaboration for .a combined official policy which-would settle the question once and for all. Opinions differ greatly.