£21,700,000 Stock Issue To Compensate Banks

Northern Advocate, 29 October 1948, Page 3

£21,700,000 Stock Issue To Compensate Banks

LOSSES ON EXCHANGE RATE...

WELLINGTON, Fri. (Sp.).—Stock to the value of £21,700,000 will have to be issued to compensate banks for losses in assets as the result of the alteration in the exchange rate.

The Minister of Finance (Mr Nash) revealed this in the House of Representatives last night during the second-reading debate on the Finance Bill.

Of this £17,400,000 will go to the Reserve Bank, £2,500,000 to the trading banks and £1,800,000 on account of forward exchange.

The bill contains a .clause empowering the Government to issue stock to meet these liabilities.

Answering Mr K. J. Holyoalce (O Pahiatua), Mr Nash said the interest rate might be 3 per cent or it might be less.

Under the Reserve Bank Act, 1034, recalled the Opposition Leader (Mr Holland) there was a statutory obligation on the Government to pay the Reserve Bank out of the Consolidated Fund an amount equal to the amount by which the bank’s assets were reduced by any reduction in the exchange rate. A stable price level was essential, but this would never eventuate while the Government ci-eated money without the equivalent goods. CREATING MONEY The Government was now creating new securities to repay the banks. This system of creating money through the printing press would affect every person in the country. The results of this latest step might not be felt for some time, but eventually the worker would be hit worse than anyone. The effect would be to widen still further the gap between money and goods and the inevitable outcome would be to increase the price of goods still further. The object of altering the exchange rate which was to reduce the price of goods would be defeated to a very large extent by this clause. Statements from the Reserve Bank in earlier years had called attention to the need to provide in times of prosperity a pool which could be used in times of need, said Mr Holland. However, sterling funds of New Zealand overseas were £63,000,000 ex-

pressed in New Zealand currency on July 28. They fell to £44,000,000 when the exchange rate was adjusted. FUNDS WILL BUILD UP Mr Nash said it was inevitable that there should be such a decline when the importing season was at its height, but as in past years the funds would be built up again when the new export season was under way. He asked whether anyone suggested that the Government should, keep a balance of £63,000,000 in London when the country was in need of a wide range of goods. It was a question of watching the sterling funds and preventing any dangerous falls. There had been no restrictions on the withdrawal from New Zealand of what was described in financial circles as “hot” money previously sent here from Britain, and which investors now wished to remove from this country in view of the return to parity with sterling, Mr Nash continued. Such withdrawals would affect New Zealand's sterling position, but the sooner this “hot” money went, the better. There would inevitably be some difficulties in New Zealand during the period of adjusting export income to I import expenditure, but he hoped the difficulties would be resolved within a reasonable time.

Continuation of exchange control and import selection were essential features of the Government’s policy for dealing with the situation.