MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 219, 14 August 1940, Page 12

MONEY AND BUSINESS AFFAIRS.

OUR LONDON FUNDS. (By Lord Balfour of Burleigh, chairman of the .National Bank of Now Zealand, ill his address to the shareholders at the annual meeting, made reiercnce to our accumulation ot sterling lunds and expressed the opinion that they might not exist after the war. Of course, he did not mean exactly what he said; what he did mean was that the funds would melt away until there was very little left and the danger point was reached. The London funds are accumulating now because of the war. The British Government as is . well-known has commandeered our main primary products at very satisfactory prices, and is paying for this produce at short intervals. This in itself adds to the funds. Had there been no commandeer, the produce would have been sent to the British 'markets for sale. From the time of shipment until sale there is a time- lag of three months or more, and during that period there is a steady demand for sterling funds which prevents their growth. Now the sale is managed by the State and the whole of the proceeds is lodged with the Reserve Bank, and this is a loss to the trading banks. There are other' factors helping to expand the amount of sterling funds. Importers here have not been able to use up the amount of sterling exchange allowed them because British manufacturers are unable to execute orders owing to being engaged in war work. Moreover, shipping is disorganised, and for these reasons demands on sterling exchange are restricted, hence the accumulation. Wo may expect to see a further increase during the next five or six months unless importers are able to get’ delivery of goods ordered. Thus the state of the London funds is quite temporary. When the war terminates there will be a strong demand for sterling from importers. It- is also reasonable to assume that the country will revert to the normal practice of financing produce shipments through the trading banks. When that time comes the sterling funds held by the Reserve Bank will show a big decline and those of the trading banks corresponding improvement. One cannot believe that war economies and finance conditions will be continued into peace times. Naturally thc people will want to get back to their normal peace time methods of business, and if this is not permitted 6erious difficulties must arise. IMPORT RESTRICTIONS. Lord _ Balfour is of the opinion that any relaxation of import restrictions at this stage would be premature. That is veryobvious. Import restrictions will ! not be lifted for a very long time after the .close of the war. The spending power of the people has been ahead of production. That wan the position in the year ended Juno 50, 1939, for the excess of exports for that year was only £1,391,000, while under normal conditions we require an excess of between £10,000,000 and £12,000,000. The earnings during this war period are big, and the export income for the past production year has been exceptionally large, with every prospect of being larger in the current production year. Because of the high spending pow-cr, and the increasing demand for consumption goods, commodity prices are high. Money is in plentiful if not excess supply, and this increased spending power will be used. When the war is over, and foreign manufacturers arc able to make delivery, goods will pour into the country and thus a considerable amount of sterling funds, would be absorbed. Import restrictions cannot be relaxed now or for some time after the war. When war economics settle down to peace economics there will naturally be changes in business. It is best to remember that war economics are not stable and what changes will take place, and the scope of those changes which must follow upon the close of the war arc . beyond prediction. The Mortgages Extension Emergency \ Regulations 1940 are a moratorium for the . duration of the war. Although this is termed , mortgages emergency regulations other . debtors come under their protection, i Leases with a purchasing clause, hire pur- . chase, and even current debts such as life insurance policy premiums eotne in for , protection. .Still, the regulations do not

go far enough, for there arc other things in action besides a life insurance policy. There arc the ratc6 and taxes which may be said to be in “action” and protection of payment of these debts would be welcomed. The regulations arc discriminating for they apply only to private debts actual and in action, but not to debts owing to the Government. It is a question whether these regulations which arc very sweeping are really required. Soldiers and those away from our shores on war service should be protected, hut such protection is not needed by the rest of the community except in a. few special cases because spending power is greater than before the war. People should be encouraged to pay their debts and not bo restricted bv law

from doing so. The debt owing by oho person to another is often flic income of the latter, and it is hard that the latter should be penalised by the law. ' AUSTRALIAN SHARES. The right of sharebrokers to deal in Australian shares is qualified. They can buy or sell shares between New Zealand investors, but they cannot buy Australian shares in Australia, for that would involve exchange, and it is necessary to conserve exchange. If Britain develops her export trade, as no doubt she will, our importers will be able to get delivery of goods, and then there would bo a drain on sterling funds. But there are a number of companies in New Zealand with headquarters outside of the Dominion which maintain share

registers locally and there is lio restriction in dealing in shares of such companies, because they keep share registers in the Dominion; transfers can bo registered locally, and there is therefore no call for exchange. The Reserve Bank return [or the week ended August 5 shows that the Government borrowed a further £250,000, bringing the total of such borrowing to £21,860,000. Tho amount is large, but it is certain to grow larger under the stress of war. The Government can borrow up to £25,000,000 from the Reserve Bank on the basis of 2 per cent, interest. Tho loan is in the nature of a bank overdraft, and can be reduced from time to time. The note issue is also rather largo at £19,718,751, but it must be remembered that in addition to the normal State expenditure there is tho heavy war expenditure. The increase

in tho note issue for the week under review was £95,315, and this would be largely duo lo the end Of the month payments of salaries, etc. Sterling funds on August 5 totalled £13,092,952 and will probably show a further increase. The proceeds of tho sale of our primary products overseas add to tho sterling exchange total. The Bank of England pays half-yearly dividends and the half-years are taken as at the last days . in February and August. For th© half-year ended February 29, tho dividend was 6 per cent. and £567,567. Another half-year, closes at the end of the month, and the profits shown up to Wednesday of last week were £500,000. The profit for the week was £IOO,OOO, _ and as there are still three weeks to go it is certain tjliat the dividend for the half-year will again be 6 per cent, less income tax. Tho bank does not publish any formal balance-sheet, the weekly statement being I sufficient. Each week’s profit is added to the “rest” or reserve fund. I