EXCHANGE PROBLEM

New Zealand Times, Volume LII, Issue 12169, 20 June 1925, Page 5

EXCHANGE PROBLEM

EFFECT OF DAWES REPORT “RESTARTING CLOGGED WHEELS OF INDUSTRY” REVIEW BY SIR G. ELLIOT In his address at the annual meeting of the Bank of New Zealand yesterday reference to the exchange problem was made by Sir George Elliot (chairman of directors). He said: —“In the world of business and finance two features at least are outstanding sinoe our last annual meeting. The first is the adoption by the Allied Governments of the Dawes Report, which reviewed the financial position, and proposed readjustments with a view to restoring the economic system of Germany, giving her assistance in the shape ot a loan, and enabling her to set up a reliable unit of value in place of the paper mark, the value of which, as far as exchange was concerned, had completely disappeared. I do not proposed to discuss the provisions of this valuable report, which will, in future years, rank as an important historical document; but I may safely say that it has already done much towards restarting in Western Europe the clogged wheels of industry and commerce. RETURN TO GOLD STANDARD “The other great event to which I refer has taken place since the close of our financial year. On April 28th, Mr Winston Churchill, Chancellor of the Exchequer, announced in his Budget speech in the House of Commans that, from that date, Britain had returned, in her international dealing, to the gold standard from which wartime conditions had driven her nearly eleven years ago. South Africa * had some time before resumed making gold payments, and some large shipments of gold had been received in Australia from that source. When the Chancellor made his announcement regarding Britain’s new policy, he was also able to state that Australia and the other Dominions were simultaneously taking the same course of action. This was confirmed next day in regard to Australia, and in New Zealand it has been announced that, although no change in the legislation placing restrictions upon the shipment of gold coin is contemplated, the policy of the Government is to permit, under license, the free oxport of gold. EFFECT ON EXCHANGE RATES “The immediate result of this change of monetary policy was that the rates of exchange between New Zealand and Australia, and New Zealand and Great Britain, were, within a few days, subjected to the greatest change that had been experienced for many years, the rate for buying hills on London on demand falling from 55s per cent, to 30s per cent., and for selling demand drafts on Australia from 50s per cent, to 7s 6d per cent. Rates for other usances, either buying or selling, are in accordance with the foregoing, and all rates are less expensive to the customer than the cost «of importing or exporting gold. “Reference has frequently been mads from this chair, during the past few years, to the difficulties that post-war conditions have created in the transference of funds from place to place—the extreme fluctuations that have taker plaoe in many countries, and the tremendous divergence from the “par of exchange” that some currencies have experienced. “UNUSUAL TAX ON EXPORTER.™ “In New Zealand, however, we hare not experienced the very rapid _ fluctuations that have taken plaoe in some countries; still, circumstances had brought about a divergence which created an unusual tax upon the exporter of New Zealand produce, and it must be satisfactory to those who are interested in our export trade, that the buying rate of exchange has now changed so greatly in their favour. It is quite true that the importer has lost an advantage that he has for some years been accustomed to receive, but this was unavoidable, and I am sure you will all agree that the improved position in connection with exchange is a matter of great satisfaction. While gold mush always be considered a great factor in stabilising exchange, other factors will at times have their effects. Variations in quantities and prices of imports and exports, rates of interest, new loans, or the payment of old ones, will all affect rates of exchange. As most of you are aware, the reversion to the gold standard in Britain does not carry with it the immediate return to a gold currency, nor, at the present time, would such a change be either safe or advisable. BRITISH CURRENCY. “In addition to bank notes, all safely secured, and silver and copper coin, there were as British currency, outstanding on April Ist of this year, £288,635,000 in Government currency notes, legally secured by:— £ Gold coin and bullion 27.000,000 Silver coin 7.000,000 Bank of England notes ... 26,950,000 Balance in Bank of England 133,000 Government securities 239,913,000 £300,996,000 “The highest amount of Government currency notes outstanding at any recorded time was £368,231,000 in December, 1920; so that they were reduced by £79,596,000 before April 2nd, 1925, and it is to be confidently expected that the work of reduction will go steadily on; but it is clear that, until the currency notes are much further decreased, it would be unwise to resume the free circulation of gpld coin, for such a course might lead to a depletion of gold in Great Britain sufficient to injure the national credit. NEW ZEALAND NOTE CIRCULATION. “The circulation of notes in New Zealand instead of gold can be of no pecuniary loss to anyone, saves wastage of the metal, yields an important amount in tax to the State, and enables the hanks to afford more accommodation to their customers than they would have been able to do if, in addition to vvliat is legally necessary to hold, they were called upon to deplete their reserves in order to provide sufficient gold for circulation. The proportion of gold that must be held against notes in circulation in New Zealand is one-third’; as a matter of fact, the gold and bullion held in the hanks in the Dominion at March 31st amounted to £7,727.904, and the notes outstanding amounted to £6.694.041.”