MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LVIII, Issue 21, 22 December 1937, Page 4

MONEY AND BUSINESS AFFAIRS.

LONDON MONEY MARKET. (By “H.J.K.”) Money remains exceedingly cheap in London, notwithstanding that a hardening tendency has existed for the past few months. It has been the fixed policy of the British Government to keep money rates low, in order to induce industry to 'plan ahead and engage in enterprise. The plan adopted in Britain to ensure low interest rates has been very different from the policies pursued in Australia and New Zealand. Out here the previous Government reduced the rate of interest on Government stocks. The British Government did not attempt any contract-breaking scheme, but made an order that no foreign loans should be placed on the London market. This meant the conservation of British savings for the British people. The rule laid down was that the Bank of England should examine all for : eign and Dominion loan proposals ana make recommendations. Not even the Dominions have been able to raise fresh capital in London, but there has been no bar to conversion loans. Nevertheless, some foreign countries have been permitted to borrow in London. For example, a Swedish bank borrowed £300,000; the French Government has been granted a credit of £40,000,000; Holland and Belgium have been allowed to borrow a few millions, but Italy was refused credit by London bankers because'the risks were too great. Italy’s credit in London is at zero. Speaking in the House of Commons the other day, the Chancellor of the Exchequer (Sir John Simon) _ stated that he did not think the time had come for foreign Governments to be allowed to borrow freely in London. He also said that the loan granted Belgium was a financial transaction not involving the purchase of goods in Britain or elsewhere. It was understood that 20 per cent, of the loan, that is about £1,000,000. would be spent in the United Kingdom. The British are somewhat liberal-minded with their foreign loans. They do not stipulate that all or any portion of the loan shall bo spent in the country, as is the case elsewhere. France makes a practice of it, and the war loans granted by the United States to the Allies carried a clause m the contract that the loans should be spent in America; consequently American manufacturers were _ able to charge fancy prices for indifferent goods. The British view is that the borrower should not be' tied down to any arbitrary course of action. Belgium has just borrowed £5,000,000 m London, and proposes to spend Ll,* 000,000 in Britain, but what she is going to do with the balance is not known. Belgium has most likely secuied a credit of £5,000,000 from the public,' which stands to her credit in the Bank of England. Belgium may have to pay France £500,000; if so France is given a cheque for the amount on the Bank of England. Hie French people want francs and not sterling, and so sterling has to be converted into francs through the foreign exchanges. Probably no gold has figuied in any of the transacWns and gold has not been needed; the transactions have been carried through the exchange of credits. Money changing is quite'a big business in all the financial centres. COMMONWEALTH LOAN. The Commonwealth Government lias been somewhat fortunate in having its loan oversubscribed. The effective interest rate was £3.15s 6d pern cent., or about 40s less than the loan floated in May last yielded investors. Australia 'is doing very well, for thatcountry is not entirely dependent upon one or two primary products. Besides wool, the Commonwealth is a big exporter of wheat, sugar, fiozon and chilled meat, dairy produce, fruit, and wines. In recent years Australia has developed many industries, such as iron and steel, glass-making, newsprint production, besides quite a number of manufacturing industries. Australia is now building its own aeroplanes and motor-cars; it does a little shipbuilding; it is manufacturing a machine-gun and' its own ammunition Australia is able to export to New Zealand fencing wire, structural steel goods, boots and shoes, apparel, glassware, etc. We buy from Australia more than we sell to that country, because wo-have very little to sell th at Australia does not produce for herself. We have an interest bill to pay Australia annually, and for that reason ive should export more to Australia than we import from her; that is, the balance of trade should be in purfavour so that we can meet flip interest bill. That we have not a balance in our favour makes no groat difference, for wo discharge our obligations to Australia by drawing on our credit balances in London. It is a matter of working the exchanges. The people of England are apparently determined to get a full measure of enjoyment and pleasure this Christmas judging by the value of the active note circulation, for the week ended Wednesday of last week the notes' in circulation totalled £501,900,000, which is much greater than the total recorded last year. The figures may show an increase in the return which will be made at the close of business to-day. . The meaning of this heavy note circulation is that there will be heavy expenditure this Christmas. In the face of such evidence it is absolutely absurd to talk about a pending slump. There are other facts and figures which. confound the pessimists. Britain s trade for the eleven months to the end of November shows increases in both exports and imports, and Britain’s revenue returns to the middle of December also show expansion. These are not accidental and without significance 5 the improved figures mean that Britain is in a state of prosperity, with no indications of any serious setback. The rearmament programme is not neurly completed, although it is training in momentum each week. There may be some recession in international trade, but that should be temporary. At all events Britain is in a position to stand up against that. Britain’s economic position is sound, sounder than that of any other country. The rebuke administered by tho Prime Minister (Mr Neville Chamberlain) to the pessimists Js having a good effect. Business men in London who know the value to bo placed on Ministerial statements are quite cheerful and optimistic.