EXCHANGE AND CURRENCY

Nelson Evening Mail, Volume LXI, 18 June 1926, Page 3

EXCHANGE AND CURRENCY

REVERSION TO GOLD STAND AH I) (Special to The Mail) WELLIA'GTON,. This Bay. "Amongst those whose views are en titled to rospo'rjs, there is sti]! an acti ■ di.MVii'p.riie of opinion as to whether o: not the reversion to '.he gold skindanl was )>remal.ui'( , . '!<■ ihat as il may, this at least we do Know: Ihat sinci' the. removal of (he restriction, exchange difficulties in New Zealand have disappeared and primary piodr.cers have ma terially benefited." These remarks were made by Sir George Elliot at-1 he annual meeting of tlm Bank of New Zealand at Wellington to-day. lie proceeded to make the following interesting observations :

Selling rales on London are considerably less than the cost of shipping gold; the same remark, to a lesser degree, applies to exchange on Australia-. It was hoped that one important result of the reversion would be the cheapening of money. So far, however, this has not been effected, although the Bank of England reduced its rate by stages from 5 per cent, to 4 per cent.';' but, owing to the outflow of gold it was found necessary to again advance the rat. 3 of 5 per cent. There is no getting away from the fact that as long: as Great Britain is heavily indebted to line- United States, the latter coantry must dominate the London money Market. However much the British Government may desire to reduce money rates—not only with the object of cheapening the cost of its own loans, but also of benefiting Britain's large industrial .interests—it must be influenced by the rates prevailing in the TJin'ted States. Tliis stale *of :'af> fail's is, of course., of considerable im•port'anca to this Dominion, and to a.l the oilier parts of the Empire that look to the London rhoney market to supply their, loan requirements. To some extent overseas banks can help the situation by the maintenance of funds aikl investments in London, but, as far m New Zealand is concerned, this can only bo done while bank notes continue as legal tendav in the Dominion. Should.notes cease to be legal tender, this bank would require to make provision for a reduction of two millions in its note circulation. This would necessitate elm,realisation of Brilish Government securities, arid the' importation of two millions of sovereigns, otherwise our holding of gold in the' Dominion would become unduly low, A cliaii'i'j over to a- gold currency would not make any material difference to the profits of the- Bank, but it would mean a considerable loss of revenue to the country. /\s I have said, the Bank would require to sell two millions of its investments in British Government securities, the avei'age return oh which is about 4{- per cent. This would mean -a reduced income to us of £85,000, but British income tax approximating £17,000 would be saved. The net loss of profit to the Bank iii London would, therefore, be £68,000. On the other hand, in New Zealand we would save : Note Tax of 3 per cent, on £2;000,000 £60,000 Saving of income tax on- re' duct-ion of liabilities by £2,000,0C0 * 6,750 Net gaiit to the Bank of New Zealand £66,750 \Of course, there would be the expense of importing the sovereigns, but that would be non-recurring and would be offset, apart from taxatioh, by lower working expenses of the; note circula? t'iom * Neither in Great Britain nor in New Zealand, is anyone worse off because sovereigns are riot in circulation. It might not- be of great moment to Britain if she lost' the £17,000 of taxation which the Bank pays on the, t % \yo millions invested there; but New Zealand carirtot afford' to disregard the revenue of £66,750 derived from this B; nk alone An respect of. two millions of its note circulation, to say nothing of the additional Toss in connection- with the circulation of the other batiks trading in the Dominion. From the figures I have quoted you v,ll see that, while the note circulation is without -doubt a convenience to the banks, it is riot the profitable privilege so riiany people, suppose it to"jw.