TRADE AND EXCHANGE.

New Zealand Herald, Volume LXIX, Issue 21087, 22 January 1932, Page 8

TRADE AND EXCHANGE.

The rapidity with which the overseas trade of-' New Zealand automatically adapts itself to changes in economic conditions has again been demonstrated by the returns for 1931 in comparison with those for immediately preceding years. In 1928, when the worldwide boom was almost at its peak, exports from New Zealand rose to a record valuation exceeding £56,000,000 and the surplus over imports was over £11,000,000. Two years later, the valuation of exports was down to £45,000,000, and the apparent balance fell, below £2,000,000. The decline in export values has persisted throughout 19.31, reducing the total to £.35,000,000, but importations have been so rigidly restricted that the official valuation is under £25,000.000. On these figures, there is an apparent favourable balance of over £10,000,000, but when allowance is made for currency complications, it appears that the year's transactions produced a surplus in sterling to New Zealand's credit of about £7,500,000. Any attempt to calculate the net balance of payments and consequently the actual increment to the funds available in London toward balancing this year's transactions is handicapped by lack of information. It may, however, be assumed that up to last year payments of interest on public debts was approximately balanced by fresh borrowing: even in 19.31. the Government borrowed about £6,500,000. In these circumstances, the real surplus on trading account has, in the past, either accumulated in the London balances of the banks or passed into overseas investments. An illustration of the process may be obtained from the balance-sheets of the Bank of New Zealand. In 1920, its funds in London exceeded £20,000,000; the succeeding slump, with the huge excess of imports into New Zealand, reduced them to £7,000,000 in 1922. By 1929, they had increased to £12,500,000, reflecting the succession of favourable trade balances ; by last March, the reverse movement had reduced them to £6,000,000. These comparisons do not warrant any definite conclusions regarding the margin of funds held by the banks in London, but they show how the effects of trade fluctuations upon exchange rates are miniprised by accumulating or drawing Jupon balances in London

according to the circumstances. The established policy and constant practice of the banks has been to maintain local equilibrium and stability with sterling—the policy advocated by the Bank of New South Wales in its latest circular. Exporters have been protected from severe curtailment of their returns in the conditions of such years as 1928, when the sight rate never went below 12s 6d discount, and importers have similarly had the benefit of this elastic system when trade conditions have been adverse. A severe test will be imposed upon both the commercial community and the bankers by the transfer problems of the present year, but the difficulties are not insurmountable. A further reduction of imports by £7,000,000 appears to bo necessary; the overdue fall in prices of manufactures will be helpful. ' Moreover, there are in reserve resources for relieving the strain which must be considered before the authorities contemplate any departure from the principle of stability with sterling.