STERLING EXCHANGE

Nelson Evening Mail, Volume LXXIII, 5 July 1939, Page 8

STERLING EXCHANGE

NEW ZEALAND HOLDING j TRANSFER OF CAPITAL BLAMED ! In order, as he said, to provoke disI cushion and draw attention to a very ! important matter. Mr L. E. H. Baigent. president of the Nelson Chamber of Commerce, referred at the close of a meeting of the Chamber last evening to the New Zealand holding of sterling exchange. These, said Mr Baigent. were ■ his own views, and they did not necessarily reflect of the Chamber in any way. | Mr Baigent said the fact that the holding had declined very rapidly and was now much below a desirable level j was well known, but why it had de- | (-lined and in what manner were not I well understood. This was largely due ( to the fact that much of what had appeared to be information, was realty i propaganda, and was, therefore, incornJ plcte and unbalanced, j If. as a starting point, they took the year 1934. this being the year before! j »hc present Government took office, ; they found the figures as follow; Exi ports £47.000.000; imports £31,000.000: I excess of exports £16,000.000. At the ! i cnd °f December. 1934. the total hold- 1 | in 8 of sterling amounted to over £40.I 000.000. The figures for 1935 were;: ! Exports £46.000.000; imports £.36.000.000, | which left a surplus of exports of over i £10.000.000. OVERSEAS INTEREST PAYMENTS Overseas annual interest totalled aporoximately £10.000.000. so that surplus of exports almost exactly balanced the: interest bill, despite which, the year ended with sterling down to £36.000.000. indicating a transfer of capital away from New Zealand amounting to over £4,000.000. It was of interest to note that during 1935. the sterling holding reached a peak of over £46.000.000 by the end of May, had dropped to £34.000,000 in November (election monthU and ended the year at £.36.000.000. As i exports are heavy in November and December it appeared the transfer of capital overseas, on a large scale, commenced about election time. 1935. The figures for 1936 were: Exports £56.000.000: imports £44.000.000. giving a surplus of exports of over £12.000.000. This should have given a clearance ot nearly £3.000.000. after paying external interest. However, the year closed with sterling at £28000.000. indicating a further capital transfer, during 19.30 of over £10.000.000.

RAPID DETERIORATION This procedure, said the chairman, continued through 1937 with a capital transfer during the year of approximately £5.000.000, while the year 19.38 showed rapid deterioration, the figures being: Exports £58.000.000. imports £55.000.000. leaving an excess of exports of just under £3.000.000. or approximately £7.000.000 short of sufficient to meet overseas interest. The sterling holding dropped during the year by no less than £16.000.000. the year ending wffh a sterling holding of just under £<.000.000. indicating a transfer of j capital during 1938 of just under £lO- - Summarising the foregoing figures the speaker got the following: Excess of exports during the four vears 193419.38 £36.000.000. External interest due during the same period approximately £40.000.000 on exports, therefore, falling short of interest requirements by proximatcly £4.000.000 Sterling exchange dropped by just under £.34.000.000. this being accounted for by the £4.000.000 interest deficiency, plus £3O - ! °OO.OOO capital transferred out of New | Zealand Some of this capital trans- ! ferred represented obligations that matured during the period, and which 1 were held overseas, while doubtlessly j much of the money was used in purchasing external shares and securities. However, the fact remained that this enormous sum was allowed to leave New Zealand, and this action was the main cause of their present troubles. IMPORTATIONS INCREASING A further cause, he said, was the large increase m importations, the total for which rose from £31,000,000 in 1984 to over £55.000.000 in 1938. and it should have been obvious that the process could not be allowed to continue. It was also of interest to note that during the four years previously mentioned. bank deposits increased bv only £1.580.000. while bank advances in- ! creased by £15.150,000. As the mort-i gages registered during the same period j exceeded the mortgages discharged by only £1,100,000, it appeared, even at-! ter making allowances for the fact that ; many of the bank securities were un- ' registered, that the bulk of the £ls- - increase in bank advances replaced deposits that had been withdrawn and sent overseas. Th» most amazing feaiure of tln-se movements was the fact that although movements, anti the inevitable results, were apparent to most business men. little effort was apparently made by

1 those in authority, to stop the transfers. although the authorities appeal to have had ample 1 owers to have done OUT OF BALANCE { It should have been evident, when ln- , ternal costs were violently raised bv 1 shorter hours, greatly increased wages 1 paid holidays, public works cumpet:-’ j tion for labour and similar muvi.neiits, j that such changes would throw the j uh °:e economic structure out ol balance, unless capit: : was held in the I country and imports controlled. nn- ; mediately the other changes were made. 1 1 but little if anything was done until j quite recently and ‘hey had now reached the position where circumstances' were forcing drastic action in Conner- j tion with external trade, while the volume of internal business was being maintained by governmental expenditure. the money for which was being ; derived from oppressive taxation plus heavy advances from the Reserve Bank I \N hat the future held it was impos- 1 sible to forecast, as war and other sen- j ous disturbances could completely alter! prospects. It was certain, however mat further transfer of capital overseas cculd not be allowed, that they could not import more goods than our exported goods' would pay for alter over- , seas interest had been met. that inflated 1 costs would badlv hamper New Zealand j producers and manufacturers selling l overseas, while ‘heir l ine on internal markets would he assisted by the import restrictions. It seemed inevitable, however, that unit s greatly increased efficiency could be developed, selling prices must inevitably overtake the increase in wage rates, and this in turn would lead to widespread labour troubles. The Chamber of Commerce would undoubtedly have ample scope for usefulness during the next lew! years. INCREASED IMPORTS Mr F. C,. Gibbs, in r few remarks, said some might prefer following the lines of the economic bulletin of the

Canterbury Chamber of Commerce, and to ask why imports rose so greatly. It I was pointed out that one of the main j reasons was the expansion of credit by j the Reserve Bank, of £12.000.000. winch ] was a creation of National Credit. Mr Savage had rightly recognised th« I danger of printing large quantities 'of notes, but, unfortunately, he , had brought about exactly the same reI suit by inflating credit by borrowing ! C 12.000.000 from the Reserve Bank and J distributing it. which had resulted in jan increased demand for goods. Had j New Zealand been self-contained, the result would have been a very great [ increase in prices. Inflation exhibited I its results in so many different ways. 'ln Germany and France inflation resulted in greatly increased prices. In. New Zealand, which was not self-con-tained and was more dependent on her export trade than any other country, instead of raising prices inside the country, it had resulted in increasing the demand for overseas goods. That was the way inflation took effect in New Zealand. Referring to the transfer of capital, Mr Gibbs said that when the exchange was raised, a large number of outside firms doing business in New Zealand left their profits in Wellington, awaiting some more favourable opportunity to take them out. but instead of the rale of exchange being lowered, it appeared it might be raised and capital was removed as soon as possible.

“A ‘BLACK MARKET*’ Proceeding, Mr Gibbs said that cconomi s had pointed out when the I import Restrictions were imposed, that they would fail in their objective. a» a 'black market ’ would be sure to develop in New Zealand. New Zealand bad been very unwise in atI tempting to control sterling rates because control had been tried by many countries and had 4 'cd. It was mi--1 possible to stop the export of capital. Money paid in England for transmission to New Zealand was field thorn and its equivalent in New Zealand cur- ; Toney plus commission paid to the per- [ here to whom it was due. That sort of thing was being done on a very | large scale i people* having money , due to them in England were offered I extra per cent and it was difficult to | stop. There had been many warnings that the sterling exchange would diminish in spite of the restriction*. Actually, imports in May last were bigger than in May of the previous year. It ahowed how tutile the import restrictions wer«t Mr Baigent said if it were impossible ‘,O prevent the outflow of capital, they were in for a bad time. It must be stopped or the ieju lati.n of the past few years abandoned. “ • was no serious attempt made to stop the outflow of capital until the last lew months?” Mr Gibbs: Not till after the clecMr Baigent said it was a very unfortunate position Mr Baigent said his comments wero entirely his own. made to ginger up discussion He would l • very grateful if lie were taught something. The Chamber was not a debating society, but it did no harm to «•' c matters 00 which there were differcr.ee* ol opinion and "have a good go at it.**