EXCHANGE POSITION.

New Zealand Herald, Volume LXI, Issue 18891, 13 December 1924, Page 13

EXCHANGE POSITION.

NO PROSPECT OF RELIEF.

BANK CHAIRMAN'S REVIEW.

TRADE AND INTEREST FACTORS.

LOCAL BORROWING URGED.

[BY TELEGRAPH.— OWN CORRESPONDENT.] WELLINGTON. Friday.

The view that there is no practical solution in sight for the exchange position was expressed by the acting-chairman, Mr. William Watson, at tho half-yearly meeting of the Bank of New Zealand to-day. Ho declared that tho banks aro not to blamo for the present situation, but would all prefer to get back to pre-war ratos and conditions, which were seldom or never complained of, but were more profitable on the capital employed than they are no\/.

Mr. Watson referred to the arrangements made in Australia for the issue of additional notes, remarking that it was difficult to see why this could not have been done by the former Notes Board. Had not the present arrangement been made, however, it would have been impossible to estimate the extremity to which tho rates of exchange might extend. It had, of course, been of benefit to the primary producers of New Zealand, for any dearer exchange charged on produce bills in Australia would compel greater discounts on drafts and telegraphic transfers to be allowed to importers there, and the banks in this Dominion would have to follow suit, and raise their buying rates on London as well as their selling rates on Australia. Thus our importers from Australia and our primary producers would both suffer. The " banks here do not require State assistance in financing the exports, and there is every probability that in New Zealand this season's produce bills will be negotiated at rates of exchange more favourable to exporters than those in Australia. Low Interest in London.

"If wc considered only our present interests we should decline to purchase bills on London to add to funds there on which we can g- .1 but, half the interest. obtainable in New Zealand or Australia," said Mr. Watson. "Such a step would, however, be disastrous to producers and exporters, and we concluded it, to bo in accord with our public responsibility and better for the Dominion as a. whole that all the bills should be purchased, the bank charging rates of exchange to cover to some extent the loss of interest-.

"Charges and interest loss on transmission of gold from London, even if the gold were obtainable, would now cost about 1J per cent. While the demand for our exports is strong in Great Britain, so that the prices are high, and while both price and volume, combined with loan money raised in London for transmission to the Dominion, create much greater value than that of our imports and interest disbursements, then exchange must go against the exporter and in favour of the importer. Neither tentative method nor even gold itself can in such conditions permanently ensure stability in the world's exchanges.

Season's Gain of £10,000,000. "On a reasonable estimate, this country, at tho close of the present season, should be more than ten millions better off than at tho commencement: therefore, if the Government requires to borrow, it should be possible to raise a loan in the Dominion without unduly dis turbing local financial conditions," Mr. Watson concluded. "A somewhat higher rate of interest would have to be paid here than in London, but, ou the other hand, there would be saving in exchange and in costs of flotation and administration, while the interest would remain in the Dominion. Such a course would certainly tend to steady the exchange market.

"Other steadying factors would be more value of imports, which, considering it already too great, many would deplore; and a heavy fall in the value of our exports, which none of us want to see."