EXPORTS OF CAPITAL.

New Zealand Herald, Volume LXVII, Issue 20518, 20 March 1930, Page 10

EXPORTS OF CAPITAL.

The evidence of banking returns is quoted by Professor Tocker as an indication that, during the past year, the Dominion's apparent favourable balance of trade was offset by export's of capital, mostly for overseas investment, and that this movement partly explains the present position of the exchanges. The conclusion that the year's transactions resulted in an adverse balance, taking all items into account, confirms general observations. It is well known that a large amount of money has gone out of New Zealand for investment, especially in Australia ; that the Government has raised a considerable sum for the repayment of debt in London; and that the contraction of the .visible trade balance, owing to diminishing value of exports and expansion of imports, has involved a corresponding increase of remittances in payment for goods. Nevertheless, it would be imprudent to conclude that a net balance of £8,500,000 necessitates such abnormally high exchange rates as now prevail. It is necessary to consider the circumstances preceding the movements which contributed to this situation. If the banking returns for March quarters are reviewed, it will be found that last year there was an excess of deposits of £8,986,000, the largest surplus at that period since the abnormal conditions of 1920. That surplus had been accumulated in two years, for in 1927 there was an excess of advances of £4,263,000. In 1927-28,, there was an accretion of £8,250,000, and in 1928-29 a further gain of £5,000,000. Hence, it may fairly be assumed that a year ago there was a surplus of money in the Dominion for which, owing to the lack of attractive domestic employment, external investment would naturally be sought. Nor is the exodus of even £8,500,000 —the bulk of it already represented by the cash holdings of the banks in London—sufficient to explain the movement of the exchanges. In 1925-26 there was a comparable movement to the extent of £7,000,000 ; yet during that period the exchanges varied only slightly and then in favour of the Dominion. There can, indeed, tie no doubt that the predominant influence is entirely external to the Dominion, that the exchange value of New Zealand currency has been depreciated through its close association with the monetary system of Australia, both being regulated by empirical legislation. It is, of course, a counsel of perfection to recommend. the adoption of a gold standard in New Zealand until either Australian conditions have been stabilised or monetary independence of Australia established.

Australia actually adhered to the gold standard in 1925, but has since suspended it. So did New Zealand nominally, for simultaneously with the declaration of Britain's decision, an official announcement was made that the Government would "freely license the export of gold," but would retain the power to prohibit. That was a concession to principle and a repudiation in practice. At no time during the past five years has the gold standard been effective in New Zealand, nor is there any indication of official action being taken to prepare the way for its restoration.