DOMESTIC BORROWING.

New Zealand Herald, Volume LXVIII, Issue 20823, 16 March 1931, Page 8

DOMESTIC BORROWING.

A suggestion was made by Mr. Coates in the House of Representatives last week that the Government might expedite a reduction in the rate of interest by modifying the terms on which securities are offered. Since the beginning of last year, when the Government's rate was suddenly raised from 5| to 5.\ per cent., stock and debentures with a currency of seven years have been continuously on offer at every money order office in the Dominion. In his reply Mr. Ransom said the Government might not be able to raise the money it required at a lower rate, and he remarked that at present the overseas market was unfavourable. No recent information is available regarding the amount obtained by this method of domestic borrowing, but the returns of the Post Office Saving Bank suggest that while the Government has been contracting to pay 5i per cent, to the general public, it has been losing the normal assistance of investments by the savings bank at much lower rates. According to the latest return, the bank's investments in New Zealand at March 31, 1930, amounted to £46,358,592, of which £520,000 were in local authorities' securities, and all the rest in Government securities bearing interest at 3h to Ah per cent., with a few blocks of 5 per cent, stock, and only one item of £16,600 at 5J per cent. Since the date of that return, the bank has not been able to lend any money to the Government, because withdrawals by depositors have been on an unprecedented scale. Three years ago there was a heavy depiction of the bank's funds, withdrawals exceeding deposits in the financial year 1927-28 by £2,973,931, which was £1,226,775 more than the interest credited to depositors' accounts; as a result, the administration had to realise part of its investments, and on the year there was a reduction in them of over £1,000,000. During the calendar year 1930, the excess of withdrawals rose to the record total of £-1,136,448, of which £3,157,643 was within the nine months of the present financial year ending on March 31. The accounts for the full year will consequently disclose a net shrinkage in the total funds to the credit of depositors of oyer £2,000,000. involving a corresponding liquidation of investments instead of the normal transfer of a surplus into investments in Government securities. Adverse economic circumstances have naturally caused a drain on savings, but the discrepancy between interest rates offered by the bank to depositors and by the Treasury to purchasers of its securities is sufficiently wide to have caused a substantial transfer of funds from one pocket of the Government into another, with a considerable increase in the cost of the money to the State.