FINANCE AND TRADE

New Zealand Times, Volume XXVIII, Issue 6053, 10 November 1906, Page 8

FINANCE AND TRADE

LONDON DISCOUNT RATES. Tho margin between the official Dank of England discount rate and that current in the open market has varied ,considerably 'during the past two months, but there is not that degree of independence in ,tho open market as the variations in the difference between tho two rates would x-oem ,to indicate. Of this fact tho open 'marhot lias been more tlmn once apprioed in very significant fashion by tho authorities of tho Bank of England. Quito recently, indeed, tho market was plainly given to understand t.iat its operations must ho in tho direction desired by the Bailie, otherwise’ slops would have to bo taken of a compulsory nature. The occasions for such action arc fortunately rare, but ft is as well for tile heavy commercial top of thefn'orkl, npinniug as it does upon a comparatively fmo point of gold in London, that the Bank has, tbo power to force the bands of tlro-sb who can help to keep it in an erect position by following the Bank’s load, or can permit it to : fall, through ’ignoring that lead. ’ v

It is, only, at times of, severe financial stringency like the present that there io , any danger in a wide margin : between ..the Bank rate and tbo open market rate. Tho reason will be obvious , whcn ; tho object of a rise iu the. Bank rate is considered. . That object lias boon several time’s explained in onr columns, for the benefit of the uninitiated,_ to bo (1) the restricting of gold withdrawals; from; the Bank; (2). tho 'attrition of; gold to the Bank. Whentbo Bank rate is low foreign borrowers: flock to'Loudon,, and when tho Bank, Tate' is high, foreign ’lenders’ do tho same. Therefore, the primary - object of tbo Bank in establishing in high official rate is to raise tbo 1 price > of money, and. so put a temporary brake on borrowing', for specnlativo, ’ purposes. . Not only in it the Bank’s object to check direwt borrowings from itself, but'its nim.'is also: to, chock-in-direct borrowings ■through-the medium , of tho open market, comprising tho clearing hanks,, largo 'discount houses, and bill brokers generally; whoso each 'reserves find their way directly or indirectly to the Bank of England on current account: and who .would, of course, deplete the reserves of the Bank by withdrawals of deposits in firoportiou to the extent of tboir own;, endings,

It will thus bo evident that tho official Bank rate cannot bo effective unless the Bank receives tho support of the clearing hanks and bill brokers. TJio method of co-operation is for tiro open market to move its rate’ up as the Bank rate goes up, so as to pro-, vido. a practical and effective ,- : ,check’ bo speculative borrowing; and at the same time, by raising tho price of money in London, to . attract gold from "abroad for investment there, which gold would ultimately findir.ita, way into tho Bank’s vaults, ;; . .“The Times,” commenting, on 'the pace at which New York was snapping up all available bar and other gold in London. - remarked:—“The 1 . Bank , of England is more thwi capable '.pf'.meet-, ‘ ing the requirements of the situation, so long as it receives adequate support from the clearing, banlcs and, the bill, broken*. Tliis eupports Jt appear;; to botaking, measures' tof secure by; with-;' drawing - 'surplus'; su'iiplios -of cash,:at anyrate suchwithdrawals have 1 been, made;, and. mqro may bo expectedand from ; the; manner; in : which;.they are conducted it • is 1 -inferred ' that the Bank ■ is';behind them.” ;'V This was in the middle of September when, it will be remembered, the Bank: rofusbd to discount at loss than 4 per cent, for any but its own customers, owing to the -disorganised state of the market.. At tiro time, the official rats was 3j per cent.. Immediately: afterwards the Bank minimum was officially, raised i per cent, to 4 per cent., and the market responded: by advancing itij rate 7-Xfi per cent. from 3-: 7-10 to, 3 7-3 per cent. , ■

. The action of the Bank in influencing withdrawals from the clearing banks, sc as to'bring about a hardening of the market lending rate evidently bad immediate: effect. • but. the. step, taken was probably not so much in view of "bile then state'of the: money market as in view of tbo probable,future state, winch information in its, possession enabled it to foresee would, require a tight rein to bo kept on tlio outside’ market if tbo coming difficulties were, to bo safely overcome. Evcrthing seems to have worked out .■is was intended, for the open market lias since followed . tbe Bank's lead most cpmmendably and faithfully, in iffl the upward movements in tbo official rate' wbicb tbe; gravity,of tbo situation has compelled. The ißank’rate wa.% at date of latest cablegram 6 per cent., and the market rate 1-8 less at, 5 7-8 per cent;, but before this appears in print both may bavo changed. SYSTEM IX THADE.

An important factor In America's Industrial ouocesa is. the, elaborate trade ■consular agency system, wbicb that country lias established in other parts’, of ;lho . world. lleports from these agencies, aro periodically published by the United, States: Government for tbo benefit, of : producers and manufacturem, and. theinformation, which they furnish io found io bo invaluablo to the various industries concerned.

Every few days some particular article of manufacture, is treated of from txrery standpoint, the ti'oatisa being of an exhaustive character; focussing; to a practical point the contents of tho reports received from the consular agencies upon the proccoa of manufacture followed in their respective, centres. One agent, located near the source of the raw. material, will gather up;statistics of-the cost, growth. labour, etc., connected with it. Another will deal xvitb the subject’■ in the next Otago of its 1 progress towards 1 tho finished state, and oo on. ■ Where the same description of article is manufactured in .several centres, reports upon the I'cspectivo methods and cost are given. . Manufacturers are thus able to make a, comparison, and profit hy any possible improvement in their oxvn methods and cost. In this way they 1 become fully! acquainted, through the mcdlunv of the Government, and at the expense ;of.'tho country, with the_ ; nature ..and strength of (he competition which they have to moot, and arc in a hot!or position to enter new.markets .intelligently' and WieccsEfnliy. 11 : ■ The trade consular agentsdo notcon'fine themselves 1 ; to ■ those articles which am ah-eady xnaiiiifactm'cd in the TJnitcd.-. .States,* hut forward detailed information concerning industries which "in their are: capable of being established’ there;: Reliable data as"t<x all ' necessary preliminaries, etc., arc 'thus available to I 'those who may fee! disccsod to otart 1 any iiew, industry. Canada also has : her “Commercial Ageixtr,,!’ h;:t not on ; anything like the reals of the ITaited .States trade con-

jsular syestam. Canada is, however, awaking to t)jo possibility of considerable* trade cxpiuisiou ty developing the agency system on the lines ado eve; I by her neighbouring competitor. With both counti'ios aiding tho inborn industry and ingenuity of their producers and manufacturers hy, as it ivory, a well-iiiforinc'd Intelligence Department, other countries will have to adopt similar mothodn or bo left hopelessly in tho molt in tho race for trade supremacy. New- Zealand, we believe, has one agent in London, and another in South Africa, to look after the interests of tho whole of tho producers and mamifaOcnrerd of the colony. Arc these sufficient, considering the possibilities of her staple products—meat and wool —apart from tho advantages that iron Id accrue to mnnufaetiirer.s in the knowledge that would bo gained through tlio establishment of a thorough system of trade consular agencies ? TUK COMMONWEALTH GUARANTEM. Under the Constitution the Australian States nro guaranteed threofmirths of tlie net revenue from Customs and excise up to tho end of 1910. Thereafter they Jm'j to put their trust in a magnanimous Commonwealth to “provide on such a basis an it deems fair", hut all the- surplus, whatever it may ho, must ho divided monthly amongst the States. Tho Federal Government may retain only its actual expenditure. Tho guarantee of three-fourths of tho net Customs and excise revenue up to 1911 is regarded hy a London financial paper as a serious handicap to tho Commonwealth, hut uo reason for the opinion if. offered. Presumably, it is contiderod possible that tho Commonwealth r.-cpenditujv-, after deducting the pro portion chargeable against Customs and excise revenue, may exceed tbo revenue from Post OlHco mid -other sources, and tho covering fourth of tho net rovenuo from Customs and excise put together. If this position were to eventuate, tho Commonwealth would seemingly lind itself in an awkward predicament, having no fund in hand ,I'or tho equalisation of State dividends; and its guarantee of throe-fourthfi of tho not revenue from Customs and exciso would bo unsatisfied. In view of tho point So vaguely adverted to by the financial authority referred to, tho position of tho Commonwealth rovenuo account for tho year ended June dllth, Ih'Oti, and tho estimates for tho year to Juno 30th, 1907, are of more than passing interest: —

I(i will be seen tlmt unless the estimated revenue bo sufficiently exceeded by the actual receipts, or tno amounts voted for expenditure be not all. spent, there will bo a,smaller .dividend for the States in 1907 than in 1900 by about £135,000, of which amount about ■£210,000 Is accounted for by the estimated Ipsa to the Postal Department by the adoption of penny postage during nine months' working. Whilst the Commonwealth takes the risk pf its {jiuarantee —whatever may bo its practical value—until the end of 1910. tbo States will bo at the mercy of tbo Federal Government after that date. But that the States, _as a whole, appear to bo satisfied with tbo urrnngoinonji is evident from tbo fact tbht 'they recently asked that the ' guarantee should .bo perpetuated. It must' have boon a perplexing problem to devise a scheme that would blend harmoniously and equitably so many conflicting interests; and seeing . (hat tbo present arrangement is the best that many able heads could extract from a maze of methods, there is every probability of its renewal, if during the next four years the revenue and expenditure enable the Commonwealth guarantee to bo effective. All things considered. New Zealand must bo glad that she agreed to stand out of tbo compact entered into between the sister colonies. The natural resources of the. country and its climate are the best guarantee she could possess; but the Government should hasten ,to enter into a well-considered reciprocal tariff agreement with _ the Cjnmbmvoaltb that will be equitable to. both parties, and bind them closer together. - New Zealand does not desire to glory In “a splendid isolation,” so far, at any rate, as her Australian neighbours are son corn od, ' ’ THE DEMAND FOR COPPER. The steady advance in the price of copper" does not. appear to be duo to \ speculation, but rather to a legitimate demand for the metal When wo consider the variety of uses to which copper is put, because there is no practical substitute, the fact that the metal has risen'to a position of great Industrial importance in recent years cannot occasion surprise or justify suspicion that its position in the market to-day is not duo to a bona-fido demand. • Efforts to find a substitute for copper in electrical work have mot with little success, owing to its remarkable conductivity. Aluminium is the only other nieditim so far discovered, hut its price and output do not admit of successful competition with copper. The vast electrical systems of ‘•he world for motive power, lighting, and heating are only in comparative infancy; and seeing that the question of the electrification of many of the loading railroads of America and. elsewhere is, merely a matter of the execution of orders for the installation of tho system, it does hot require any great stretch of the imagination to forecast a measure of consumption in the near future, which may causa the price of that metal to reach far highe.hgures and make a fortune for many a speculative holder. The increasing demand for copper at enhanced prices has given a fresh impetus to copper mining. Many of tho old mines in Cornwall and Devon, abandoned years ago when tho market value of the metal would not afford a sufficient margin of profit, having regard to the mining appliances then available, are now being opened up Now companies and powerful syndicates have been formed for the purpose, and largo areas of tho mining zone are being taken up on lease. What the future output of copper will roach it is impossible to conjecture, but with tho aid of modern inventions, such ns electric pumping and hoisting plant, and power stamp ors, tho possibilities of tho industry are enormous. Conon-aring the vast deposits of copper in the United

Kingdom from Cape Cornwall to Dartmoor in Devonshire, and in the Montana, Lake Superior, Arizona, and other centres in tie; United States, lie ivoiild ho a hold speculator .who ventured a very large stake in copper at its present market price. “Bears ’ and “hulls” would he in equal danger.

Year Katiuiutes Ineudid year to June 30, create June 30, or tie1900; 1907. crease. .0. £ £ Customs' and excise 8.099,435 i!,8S);i»3 9,115.000 115,515 Font ollice ... Uthov re2,813,000 11,182 venues ■ 05.670 41,500 14,176 Total reveuno 11,870,3-13 11,969,500 90,157 U o m rn o nwoaltli oxpomlitnre ... 4.491,811 5,020.215 525,374 Surplus ..; 7,334,502 6,949.285 435,217