MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LIX, Issue 48, 25 January 1939, Page 4

MONEY AND BUSINESS AFFAIRS.

THE BANKING POSITION. | (By Tlio banking position in the Dominion as revealed by tho return of tho Reserve Bank for tho week ended j January 16 is satisfactory. Sterling ex-j change, around which most interest cen- 1 tres, shows an increase of £439/26-1. This would, of course, be directly duo to the sale of dairy produce in London. There are the accretions of sterling exchange through the sale of wool and meat which would accrue to tho j trading hanks. But whaiever London ' funds the trading hanks acquire they ; must be made available to the Reserve ; Bank ; in any case the trading banks cannot grant exchango without the ap- ( proval of the Reserve Bank. Tho sterl- , ing funds should increaso steadily from | now on anti by the end of March the < position should have righted itself. !, The advanaces to the Primary Pro- 1 ducts Marketing Board show an in- s crease of £139,796, which is relatively j a small increase. The total of advances j to the board at the date of the re- j turn was £6,028,505, which may be j taken as representing the value of the 1 shipments of dairy produce now on the 1 water and the unsold stocks in Lon- j don. Advances to the State for other t purposes amount to £10,070,000, an j increase of £140,000. In the two i preceding weeks advances under this < head were reduced by £370,000. The 1 State revenue should show an expan- j sion next month, when income tax pay- t ments are due and then perhaps there j will be a reduction by a substantial ' amount. ' The outstanding feature of the Bank 1 of England return for the week ended i Wednesday, January 18, is the shrink- j ago in the. note circulation, which dropped from £475,000,000 to £467, * 800,(X10. The shrinkage, of £7,200,000 - would represent the return of notes 1 following upon the holiday expenditure. < Bankers’ deposits remain at a high ( level, but Government deposits are i lower by £6,900.(X10. Tho revenue re- 1 turns of tho British Exchequer will 1 now come under close observation by financial writers to estimate tho prob- ‘ able deficit. At the end of last month J the adverse balance was about £2OO,- J 000,000. In the. current quarter the ( revenue receipts would be swollen by income tax payments. I Money rates show no cliango both in London and New York. Tho Bank ( of England discount rate lias been j held steady at 2 per cent, for a period j. of 6£ year's and looks like being main- ; tained at that figure for some time to j come. Wo have had a 2 per cent, hank rate many times before. In the crisis of 1894, the 2 per ceut. rate held for ;

about 27 months, and although the politicians of that day made gross mistakes in handling the crisis, they wisely refrained from interference and the crisis was soon ended. The demands on the capital markets last year were comparatively small, duo largely to 'the uncertain conditions in Europe. Instead of capital socking investment, it went into hiding or was transferred to America for safety. Capital has not been used to any great extent in private enterprise, and business on tlio stock exchange lias been slow. In Australia the total of new money raised last year was practically the same as in 1W;17, but tlio share of private enterprise was just about half of what, it was in the other year. The companies raised a Jot of capital in 1937 for various purposes, and have not found it necessary to obtain more capital. Moreover, many Australian enterprises arc jointly owned by British interests and capital is found privately by British concerns. President Roosevelt has requested Congress to extend for two years his power to regulate thd gold content of the dollar and the Act creating the stabilisation fund. Congress will comply with the President’s request, for it would be very risky to alter things just now. When President Roosevelt first took office the economic conditions in America were chaotic and the banks, both State and national, word practically bankrupt. One of tlio measures to deal with the situation was to reduce tlio gold content of the dollar to 59 per cent., which practically doubled the money at the disposal of the banks. By this operation the mint par of exchange of tho dollar and sterling was about 8 dollars to the pound, but this ratio was never acted upon, probably becauso the measure was temporary. At about the same

time the President fixed the price of gold at 140 s, which further added to tho volume of monetary resources. This raising of the price of gold had a world-wide effect, especially in South Africa, where it was found profitable to deal with the low-grade ores. Moreover, the high price of the metal induced hoarders in India to throw their stocks on the market, and now there is more than ample gold to servo tho monetary purposes of the world. It is not at all likely that the price of gold which, according to tho American standard price, is worth I 40k, will he altered. The Bank of England holds gold to tho value of £126,400,000, hut this gold is taken into account on the basis of the old standard international price of 85s per fine ounce. Thus there are two prices for gold, which must lead to some .confusion. It was announced on January 2, when the Bank of England’s fiduciary note issue was raised to £400,000,000, that tho British Treasury would sponsor a Bank Bill which would deal with the fiduciary issue and other matters. It is very probable tiiat tho Bank of England price of gold will lio raised to 140 s per ounce to conform with the American price, and that should then bceomo the standard for tho world. Franco and "Russia are the only other large holders of gold, and they are not likely to object to the price of the metal. Germany, Italy and Japan have very small gold reserves. But gold is not in circulation in any country, that is, it is not circulated as freely as prior to tho Great War. The Bank of England will not sell less than 400 ounces of fine gold, and there arc somewhat similar regulations in other countries. The main central banks, particularly those of Britain, France, tho United States, and the Bank for International Settlements, hold suge supplies of tho metal lying idle and of no value to the trade of the world. Gold is now serving the purpose of discharging international balance of payments. Gold will ho accepted by every country and hv general consent it is the only real money in tho world.