THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, DECEMBER 11, 1920. THE BALANCE OF TRADE.

New Zealand Herald, Volume LVII, Issue 17651, 11 December 1920, Page 8

THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, DECEMBER 11, 1920. THE BALANCE OF TRADE.

As the principal financial institution of the country, the Bank of New Zealand has special advantages in observing the changing phases of the Dominion's prosperity, and the periodical meetings of its shareholders afford opportunity to the chairman to present for public information the considered judgment of the bank upon current conditions and prevailing tendencies. Mr. Beauchamp's address read at yesterday's meeting will therefore be studied with interest as an instructive exposition of the abnormal conditions in trade and finance that have been commonly experienced during the past few months. His view is that the Dominion has been extravagant, and must now restore the normal healthy condition.by the old-fashioned remedies of hard work and thrift purchases abroad must be curtailed and new wealth created by increasing the surplus of marketable commodities. Six months ago, Mr. Beauchamp gave a warning that the time had come to shorten sail, and month by month the trade returns have shown the approach of an embarrassing situation, the risks of which have been repeatedly emphasised. The change from Imperial requisition of our produce to free marketing has temporarily checked the creation of credits in London, as no " free" produce has yet been realised, and payment for the abnormal importations during the past eight or nine months could only be made by drawing upon the accumulated balances of the war years. With the exception of payments for butter under the new requisition, no fresh funds will be available for some, time, and in view of the uncertain values of many products of the country, the banks have been forced to husband their available resources by increasing the rates for remittances to London— other words, the exchange on London is following the course of the exchange on New York. This is 'a novel, experience, but a general survey of the available information indicates that the attitude of the banks is thoroughly sound. New Zealand must pay with goods for all imports, for interest on public and private debts, for freights and other " invisible imports," so that a considerable favourable balance must be shown by the ordinary trade statistics before she can pay her way. Before the war there was an approximate balance, as was indicated by the fact that the exchange between New Zealand and London, for transactions in either direction, was stable. During the latter period of the war, when the returns showed extraordinary surpluses of exports, no movement in the exchange occurred, because the balance of funds was accumulated in London. Investments were made by the New Zealand Government and the banks in British securities, while the large collections of taxation provided the necessary funds in the Dominion for the requisition payments. According to the statistics, the value of exports in the five years 1915 to 1919 exceeded the value of imports by £55,000,000, but only a small proportion of this huge sum was actually available for the purchase of goods this year, because the greater part of it was absorbed during. the period in paying for " invisible imports." In the'five years 1910 to 1914, the average excess of exports was £2,000,000 a yeai-, to which must be added new capital borrowed abroad, averaging £4,500,000 annually. Probably £6,500,000 is a liberal estimate^ of the annual cost before the war of interest, freights, and other services, especially as certain sums were retained in London .by the banks and otherwise invested abroad,' but £2,775,000 a year was required for interest on public loans; and large sums were paid as interest on municipal securities, private companies' shares, and other investments of British capital.

With the borrowings for war purposes, the interest bill has been increased to £3,900,000, so that on the average exports worth upwards of a million a year are required to pay the additional interest on the public debt alone. Moreover, during the war years, the cost of freights and marine insurance increased enormously, and as the valuation of imports has been continued on the arbitrary basis that served its purpose in normal times, there is no means of knowing what the cost actually was. If, however, allowance is made for the fact that no loans were raised abroad for expenditure in the Dominion, and due weight is given for the extra cost of the " invisible imports," of which interest, freights, and insurance are the principal, it is clear that the warperiod surpluses of £55,000,000 had been greatly diminished by the beginning of IS2O. Indeed, the holdings of the Bank of New Zealand give a very fair indication of the sum actually accumulated. In 1914 the bank had available about £8,000,000 in London; according to the last balance-sheet, its holdings , amounted to £20,000,000. The inI crease of £12,000,000 probably does

not represent the whole sum of profits accumulated to the credit of New Zealand, but it is obviously much nearer the true position than the utterly misleading figure of £55,000,000. To this sum of twelve, or perhaps fifteen, millions have been added payments by the Imperial Government during the latter stage of the requisition, including the dividend of £1,600,000 on the wool requisition. Other funds have been made available to finance importations by the realisation of the Government's investments in London, the proceeds being transferred to the Dominion for reinvestment in the settlement of discharged soldiers. Nevertheless credits o n New Zealand account, when the course of trade turned, were strictly limited. Upon them there has suddenly been made an abnormal demand, represented by an excess of imports i n 10 months of £10,000,000, with current payments for interest and charges for freights. The banks had prepared for such a contingency, and were consequently able to pursue a policy of gradually increasing restrictions, but the prospects are of continued importations on a heavy scale for some months without any material replenishment of funds by the sale of exports in London. I n these circumstances, the banks are compelled to place restraints on imports, and it is entirely in the interests of the country that they should do so.