OVERSEAS FUNDS

New Zealand Herald, Volume LXXVI, Issue 23405, 22 July 1939, Page 14

OVERSEAS FUNDS

DECLINE OF £17,293,000 CAU SE S OF S HR.I NKAGE , TWO PRINCIPAL FACTORS [BT TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Friday "In view of the relationship between internal credit expansion and the demand for overseas funds, the connection between the total increase of more than £14,000,000 in the accommodation granted by the Reserve Bank to the Government and the loss of' overseas funds which occurred during the year is significant," states the annual report of the directors of the Reserve Bank. Dealing with the overseas funds of both the Reserve Bank and the trading banks the report states that the combined net overseas assets of the whole banking system in respect of New Zealand business declined by '£17,293,000 New Zealand currency during the year. '! The report states that the introduction of exchange control directly concerned the bank, first by the suspension of the obligation to redeem notes in sterling and secondly by the bank's statutory duty to regulate and control the transfer of moneys to or from New Zealand and the disposal of moneys that are derived from the sale of any New Zealand products and for the time being are held overseas.

In operating the permit system for transfers the bank has been guided by the assurance of the Minister of Finance that one of the objects of exchange control was to enable overseas debt, whether Government, local body or private, to be met on the due date. "It is estimated," the report adds, "that the normal requirements for Government and local body debt service overseas and for the net adverse balance of other financial transactions, including travellers' requirements, amount to nearly £12,000.000 New Zealand currency annually. As revealed bv the external trade statistics, however, the surplus of exports over imports for the year had fallen to £3.459,000 only. Moreover, owing to the state of the market for New Zealand local body loans iii London, it became necessary to repay several of those sterling loans which fell due during the year. "Thus while the decline m the favourable balance of external trade appears to have accounted for about onehalf of the shrinkage in the net overseas funds, it is evident that there was aii abnormal net overflow of capital after allowing for the local body debt repayments."