THE EASE IN MONEY.

New Zealand Herald, Volume LIX, Issue 18019, 18 February 1922, Page 8

THE EASE IN MONEY.

The reduction to 4 J per cent, of tho Bank of England's minimum rate of discount indicates a further step in the recovery from the financial stringency and commercial depression of the last 18 months. As is shown by the resume of the changes in the bank rate published in another column, it is not literally accurate to say that the index of money values has fallen to the pre-war level, since for six months before the war it was at 3 por cent., but it is now below the rate that ruled throughout the war years. It is interesting to recall that 1913 was relatively a year of dear money, with a general pressure for accommodation. Trade demands were particularly heavy, the war in the Balkans caused widespread monetary disturbance, while the London market was offered a very large number and volume of new issues, so that high prices ruled in all the money markets. The position became remarkably easier at the beginning of the new year, and within three weeks the bank rate fell from 5 per cent, to 3 per cent., affording an exact parallel with the change that took place in January, 1878, when, following the close of the Russo-Turkish war, the rate fell from 4 to 2 per cent. Early in 1914 Sir James Allen was in London with the prospectus of a 4 per cent, loan of £4,000,000 for New Zealand, and, immediately the bank rate fell to :) per cent., the issue was made at 100.J, and over-subscribed. Although there are greater complexities in the present situation, it is again a reflee tion of trade depression upon financial conditions. The decline in pricea at first gave rise, to a greatly

increased demand for financial accommodation and money rates rose to very high levels. Financial institutions of all kinds have prac tised a rigorously conservative policy, compelling the liquidation of commodity stocks and the release of " frozen credits." Thus during the first phase of the depression the curtailment of credit had the familiar effect of forcing a decline of prices. In the Becond phase, owing to the shrinkage of trade and the diminution of the amount of financial assistance required for a given volume of trade at lower prices, there has been the equally familiar effect of a decline in the price of money to secure its employment. It is doubtful whether this movement has been completed ; indeed, the condition of British trade and industry suggests that money will be still cheaper before a general recovery begins.