FINANCIAL CONFUSION.

New Zealand Herald, Volume LXVIII, Issue 20989, 28 September 1931, Page 7

FINANCIAL CONFUSION.

ALL EXCHANGES UPSET.

BAD EFFECT ON TRADE.

STABLE POUND A NECESSITY. By Telegraph—Press Association—Copyright. (Received September 27. 7.15 p.m.) LONDON, Sept. JM. It is impossible as yet to attempt to assess the effects either at Home or abroad of Britain's departure from (lie gold standard, but the fact must lie faced that the devaluation of the pound sterling threatens the stability of the exchanges of practically every nation in the world. Therefore, whatever the immediate repercussions may be on Britain's trade balance international trade will temporarily be paralysed. Early developments in the situation appear lb depend, first, on whether foreign countries, alarmed by Britain's altered exporting position, devaluate their own currencies ahead of Britain's; secondly, whether, if they do so, Britain's devaluation will progressively continue, thereby causing a competition in international devaluation. which would result in complete financial chaos.

Thero is room for serious doubt whether ! the devaluation of the pound sterling by ■ sav 25 per cent, would improve Britain s trade balance to the extent the public at j present contemplates. As indicated by the i Stock Exchange quotations for industrial | stocks, the public so far has not attempted to differentiate between exporting companies with a high or low ratio of the cost ! of raw materials to their total costs of production, although the former will obviously benefit less than the latter from the depreciated exchange. Thus the present, minor boom in industrial stocks is likely to be the subject of considerable fluctuations beforo pi ices reach true economic levels. Tho anxiety of the authorities to prevent a premature industrial boom explains the apparent anomaly of a 6 per cent, bank rate. This, however, has not sufficiently deterred speculators, hence the edict that all bargains must be on a cash basis. Nevertheless, many persons think that sound industrial equities arc now a better | investment than gilt-edged securities, as | representing a partial insurance against I the possibility of a further flight from the pound. One fact emerges from the welter of conflicting theories, and that is that until the pound sterling is stabilised the Government's credit cannot be rated as highly as previously and therefore gilt-edged stocks will continue depressed, and the scheme for conversion of the 5 per cent, war loan will remain impossible. ! FOREIGN EXCHANGES. FLUCTUATION OF PRICES. EXPLANATION OF POSITION. British Wireless. RUGBY, Sept. 25. The trend of the foreign exchanges was again adverse to London this morning. In explaining this development Sir Walter Lavton, the prominent economist, says:— " There is no reason to b« alarmed, and wide daily movements must be expected for a while. "These aie mainly due to the ebb and flow of large amounts of capital and not to the purchase of the much smaller amounts of foreign exchange required to pay for imports of food and goods. " So long as no one. either at Home or abroad, knows what the future value of the pound sterling will be, these capital movements are likely to bo erratic. Changes in the value of the pound will not all be downward, for at, a certain point foreigners will think its price is well below the level at which it is likely finally to be fixed and they then will buy sterling and so cause an upward movement." A feature at the close of the foreign exchange market was a strong rally in the pound sterling, which had weakened earlier in the day. The New York rate, which was 3 dollars 49 cents this morning, rose to 3 dollars 77.5 cents, while the Paris rate finished at after an adverse tendency. The fluctuations were followed without excitement, as it was realised that for some days there will b e considerable movements in exchange, until the opinion in the other financial centres has had time to accustom itself to the new conditions. The stock markets were again active, with industrial stocks leading. THE NEW YORK QUOTATIONS. STERLING SLIGHTLY FIRMER. (Reccred September 27, 7.15 p.m.) NKW YORK. Sept. 2f, The quotation for cable transfers of sterling closed to day at 3 dollars 81 cents as against 3 dollars 80 ' "tits yesterday. The closing quotation for Canadian dolbus was 91J rents, as against 92i cents vesterday. * The stock markets closed heavy. The principal issues declined by one to two dollars. Bonds were quiet and irregular. NEW YOItK MARKETS. rally on the exchange. EXCITEMENT CAUSES DEATH. NEW YORK. Sept. 2»5. Prices altered violently to-day as Wall Street strove to get its bearings. A strong turn in the final hour of the market more than cancelled the earlier losses of one to eight dollars. Apparently the rally was based on reports that the Exchange authorities intended to discipline the professional •' bears " who insisted on raiding tactics. In the excitement one broker dropped dead from a heart attack when on the floor of the Exchange.