MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LIX, Issue 195, 19 July 1939, Page 5

MONEY AND BUSINESS AFFAIRS.

OVERSEAS FUNDS. (By “H.J.K.”) There appears to be some misconception regarding the origin and ownership of tho overseas funds, and this extends even to members of Parliament. Thus one speaker is reported to have said: “Wo will defend the people of New Zealand, even against the bondholders who raided the sterling funds to which they were not entitled. The external funds belonged io the people of New Zealand, not to a few gangsters.” Those outside the Dominion who hold New Zealand bonds are not in a position to raid tho sterling funds Ixioaiiso they arc bondholders. The bondholders are paid the interest due to them half-yearly; if they are in the United Kingdom they must lie paid in sterling, and if in Australia, in Australian currency. It is quite wrong to suggest that they have raided the sterling funds. But how docs the Dominion manage to acquire sterling funds? The main method is l>y the sale of our products overseas. We export dairy produce, wool, frozen meat, and other products of the farm, mainly to tho United Kingdom. As the products are sold the sterling funds received are lodged in one or the other trading hanks, for they are all represented in London. The exporters of the produce quite naturally want New Zealand currency for the sterling that their produce has realised. It is part of a hank’s business to exchange the currency of one’s country tor that of another. It is really sale and purchase. The banks exchange tho sterling funds for New Zealand currency at the fixed rate of .£IOO sterling equals £125 New Zealand currency. The bank engaged in this transaction has actually bought the London funds from the New Zealand exporter, and the latter has no further claim oil tho funds. What does a bank do with tho London funds? sells these to those who need them- l* or example, an importer in New Zealand may be owing £IO,OOO sterling to an exporting house in London. Iho importer goes to his bank and buys £lO.000 sterling, paving for it at tho fixed rate of £125 New Zealand currency for £IOO sterling. Of course there are others who want sterling; travellers for example, "who take out letters of credit. It is clear from this that London or sterling funds do not belong to the people of New Zealand, but to the banks operating in New Zealand. Those who originally owned the sterling funds sold them to the hanks. When there is a slackness in importing as there was during the depression years, sterling funds accumulate. On March 31 1936 the overseas funds held by the Reserve Bank and the trading hanks combined were about £44,100.000, equal to about a year’s export income. What actually caused the heavy drain on sterling was what is known as the flight of capital and tho rehabilitation of capital; these two, it is estimated, were responsible for the absorption of about £26,000,000. The sterling funds of the Reserve Rank refuse to rise to the £6,000,000 level, notwithstanding that \vc have now had seven months of exchange control and import restrictions. The j sterling funds on July 10 amounted to £5,556,707, a decrease of £133,207 on the week. A year ago the total was £15,891,835. Tho advances to the Primary Products Marketing Department. £5,669,022, increased by £10,378, and advances to the State for other purposes increased by £BO,OOO to £10,555.000. At one period these advances stood at over £12.000,000. so that a fair amount has been repaid. The note issue at £15,470,123 shows a decrease qi £114,589 on the week, but is still £1,875,564 more than at the corresponding date a year ago. That seems to'show that the spending power of the people is so much higher than it was a year ago.

MINISTER’S MISSION. AYe now know fairly definitely the measure of the Finance Minister’s success in his talks in London. According to Mr Hudson (Secretary to the Department of Overseas Trade) the department is negotiating with tho • Minister for granting New Zealand export credits. Air Hudson told the House of. Commons that these credits would be used partly to enable New Zealand to finance purchases from Britain for defence, and partly for the purchase of the New Zealand Government’s commercial requirements, as distinct from purchases in private quarters. This means that the Now Zealand Government is provided with exports credits for tho purchase of defence equipment and such commercial goods as railway equipment and electrical machinery. No credits arc available for New Zealand importers. This will probably mean that the Government here will receive export credits for alxmt £3,000.000. The Government will thus ho able to keep clear of the overseas funds held by tho banks, and thus there will bo more available for importers. As regards the conversion of the maturing loaning of £17.000,000, that .appears to he held up. The conversations on this matter would have been with the Governor of the Bank of England (Mr Montagu Norman). There is very little chance of New Zealand being able to issue a conversion loan, for the reason that the British Government is about to issue a defence loan for tho huge sum of £500.000.000. This loan will probably bo floated toward the end of next month and will mop up the available savings of tlio British people. That was indicated by the Chancellor of the Exchequer (Sir John Simon) in announcing the poudiug issue. It is not unlikely that New Zealand will have to return the £17,000,(XX) by the issue of short-dated debentures. It would he interesting to know if the Minister received any financial advice especially from the Governor of the Bank of England. It would appear that some such advice has been given, for the Prime Minister has given a. broad hint that guaranteed prices may he abandoned. If that happens there would necessarily be a. call for a adjustments in other directions.