MONETARY SYSTEM

New Zealand Herald, Volume LXXIII, Issue 22345, 17 February 1936, Page 5

MONETARY SYSTEM

NEED FOR FORESIGHT NEW ZEALAND CRITICISED "LUDICROUS LIQUIDITY" The necessity of continuous management of a monetary system, as illusstrated by recent developments in New Zealand, is stressed in an article in the Midland Bank Monthly l?evie\v. The journal states that the successful operation of a monetary system based on sterling demands as much wisdom and foresight as one based on gold, and just as dire results may follow from too great a readiness to regard the system as a mechanical device, demanding no more than simple supervision. " London funds owned by New Zealand have been at a high level, partly because of the stimulus given to export trade to England, partly because of the check to imports, and partly as the obverso to the accumulation of foreign-owned funds in New Zealand in the hope of an appreciation of her currency in terms of sterling," states the article. " The result is a position of remarkable liquidity. " For some time past the monetary position in New Zealand has presented a picture of almost ludicrous liquidity. The return of the Reserve Bank for early December shows gold and Lon- I don funds aggregating £23.500,000, held against notes in circulation amounting to £9,250,000 and deposits of £14,500,000. The reserve proportion was therefore practically 100 per cent, whereas the statutory minimum is 25. Moreover, the commercial banks have ample funds to meet any further demands for advances that may arise. " The law requires the banks to maintain balances at J:he Reserve Bank amounting to at least 7 and 3 per cent of demand and time deposits respectively, but in September last they held against deposits in New Zealand, amounting to £61,000,000, £5,000,000 of balances at the Reserve Bank as well as £16,000,000 in London funds. " It has been reported recently that £3,000,000 of the.so funds have been transferred to the Reserve Bank following the new Prime Minister's statement on the possibility of an appreciation of the New Zealand pound; but a movement of this kind has no efiect on the internal situation, since in exchange for the London balances the trading banks acquire additional balances at the Reserve Bank. In short, there is a superabundance of banking funds in New Zealand, not as a consequence of domestic monetary policy, but mainly because of a step taken by the New Zealand Government in January, 1933, with the prime object of improving the agricultural producer's return from his sales in the English market." AUSTRALIAN BANKS METHODS AND POLICY FURTHER EVIDENCE GIVEN MELBOURNE, Feb. 15 Mr. L. J. McConnen, manager of the National Bank of Australasia, Limited, continuing his evidence before the Banking Commission, gave reasons why Australian trading banks would not favour the formation of new banks in Australia or the establishment of branches of foreign banks. Many years of difficulty, he said, must be faced before a foreign bank could establish itself. Foreign banks were not prepared to provide the general range of services offered by Australian banks which were carried cut sometimes at a loss. Mr. McConnen claimed that the trading banks system had the confidence of the public throughout the time of crisis and during recovery, also that the reduction of interest rates had had a considerable effect in mitigating the effects of the depression. Replying to a question concerning; future interest rates Mr. McConnen said he thought the trend of interest rates was to harden. He did not think this would be undesirable. WHEAT IN CANADA BOARD AND SPECULATORS INQUIRY INTO ALLEGATIONS OTTAWA. Feb. 14 An allegation tlyit wheat exporters at Winnipeg rushed to telephones to secure orders from Liverpool in order to take advantage of the Wheat Board's regulations permitting "shorts" to load up on the day Argentina raised the minimum price three cents, are to be investigated by a Parliamentary committee. Mr. E. E. Pcrley (Conservative) alleged that the board had aided traders "caught in the jam" by selling them 43,000,000 bushels overnight at a quarter of a cent increase when it knew the price would be up three cents next day. He said that only 6,000,000 bushels were sent overseas. LIVERPOOL FUTURES LATEST QUOTATIONS * (Received February lfi, 5.5 p.m.) | LONDON. Feb. 15 Wheat!— Liverpool futures: March, 5s 11 13-16 d a cental; May, 6s Odd; July, 6s 1 3-Bd. TRADE OF BRITAIN THE JANUARY RETURNS LONDON. Feb. H In connection with the Board of Trade returns of overseas trade in January the principal increases were: — 'lmports:! Grain and flour, £835,000; dairy produce, £561,000; other' food, £1,135,000; wool, raw and waste, £668,000;!. The chief decreases were:—lmports: Rubber, I £863,000. Exports: Coal, £402,000; wool, raw and waste, £230,000; cotton yarns and manufactures, £294,000. GOLD AND SILVER QUOTATIONS IN LONDON (Received February IG, 5.5 p.m.) I LONDON, Feb. 15 Fine gold is quoted to-day at £7 Os 11 Jd an oz., compared with £7 0s lOd yesterday, and £7 0s 10id on Thursday. Silver was quoted yesterday at 20d an oz. spot, and 19Jd forward, compared with 19Jd and 19$ d on Thursday. The quotation for silver at per fine oz. yesterday was 21 9-16 d, compared with 21 7-16 d on Thursday. WHOLESALE EGG PRICES Wholesale prices for B anil C grade hen eggs have Advanced Id. Values are as follows: —Hen, first grade, Is 7Jd a dozen; B grade, Is 6Jd; C grade, Is lid; duck, Is 6£d, Is s£d and Is lid..