LONDON BALANCES

New Zealand Herald, Volume LXXI, Issue 21883, 20 August 1934, Page 12

LONDON BALANCES

Sir, —In Thursday's Herald we read tho remarkable statement "sterling assets in London were transferred to Wellington by tho Reserve Bank i Q exactly the same manner as private funds "derived from proceeds of the sale of exports are transferred to New Zealand by trading banks." This is entirely wropg and misleading. If "trans- ' fcrred same as private funds—proceeds of exports —by trading banks"' is correct, there must be £22 million available for distribution and ultimately for circulation in New Zealand. However, there is no such fund, all that reposes in the Reserve Bank is documents showing that certain transactions have {aken place and that tho money has already been paid out by the New Zealand banks and that there is a credit to bo taken up in London. This credit remains in London, for the simple reason that there is 110 way of bringing it to New Zealand. Cash corresponding to> this credit has already been paid out by tho New Zealand banks and before tho London credit i 3 available cash must be paid into the bank at this end. This point is most important, because the London credit does not become tangible wealth until its actual valuo (in whole or in part) is produced in New Zealand. However, this wealth has not yet been produced, so the credit entry remains nothing more than figures on papcx. How these figures in London can be made to cover a cheque of £22 million and subsequently a credit to the trading banks in New Zealand is a puzzle. The fact is this cheque and credit entries will have no tangible backing until the importers and public authorities in debt to London pay the actual cash into the Reserve Bank. Such methods used are far removed from the safe and sane system of British banking. Cambist.