EXCHANGE RATES

Nelson Evening Mail, Volume LXIV, 3 February 1931, Page 2

EXCHANGE RATES

CAUSE AND EFFECT A BANKER’S REVIEW' An interesting explanation of the cause and effect of the present high rates of exchange was obtained by “The Post” from a gentleman who has been closely associated with the hanking affairs of New Zealand over a long term of years. “It is a somewhat difficult matter for tho general public to understand tho reason why such high rates of exchange are now operating as between New Zealand and London and Australia and London,’’ he said. "The root cause, of course, is the enormous drop in the value of the primary produce of both countries. I should reckon this would amount to roughly £75,000,000 for both countries, as compared with exports, say, eighteen months (ago. Shortly, that means £75,000,000 less of cover available in London for tho handling of exports from the United Kingdom to Australia and New Zealand, and to provide for the financial requirements of Governments and public bodies that have raised loans in London. The position is not likely to be improved until imports into Australasia snow a very substantial decline,, or we succeed in obtaining better prices for our primary products than those ruling to-day. “No doubt some relief would be obtained if Australasian Governments were able to raise loans in London and arrange for the transfer of a substantial portion of the proceeds to Australia and New Zealand, but it is understood that if loans wero raised the proceeds would be largely required to discharge obligations that have already been incurred by tho issue of Treasury bills and accommodation for the various Governments bankers,” . . . The authority was asked his option of the view advanced by Mr B. O. Ashwin that there should be separate exchanges for Australia and New. Zea- “ The interests of Australian and New Zealand hanks,” ho replied, ‘‘are so interwoven that it would bo unwise to endeavour to separate them, and I cannot imagine anything would be gained by adopting the suggestion made by Mr Ashwin. In other words, we are all in tho same boat, and must sink or swim together. “As to the rates of exchange ruling between Australia and New Zealand and vico versa, the primary object in erecting an exchange wall between the two countries,” “The Post’s” informant continues, “is to prevent traders in Australia from transferring funds from New Zealand for remission to London at the lower rate of exchange that is now ruling in New Zealand for telegraphic transfers than that in Australia. If this were done, it would only hasten the day when all the available London cover for New Zealanders would be absorbed, and the condition of traders and others in this Dominion would be deplorable. Again, bankers are not desirous of buying drafts on Australia, as they are.not wishful at tho present time, for obvious reasons, to increase their advances in that country. One or two banks are offering an inordinately high premium for tlio transfer of funds from Australia to New Zealand. That is to satisfy the demand of a good many people in that country who havo been realising on investments and seeking investments in New Zealand. That, no doubt, is attributable to the better financial position of Now Zealand than Australia. “It is difficult to foretell how long these excessively hiuli rates ruling be* tween New Zealand and the Commonwealth may continue, but it must ho admitted that in the meantime firms in New Zealand which are making purchases in Australia are obtaining great benefit by the premium obtainable on demand drafts drawn on that country..