THE WORLD OF BUSINESS

NZ Truth, Issue 997, 3 January 1925, Page 13

THE WORLD OF BUSINESS

(By -CAMBIST")

BANK EXCHANGE. The Curse of the Timest ••'(By "Cambist") "Cambist" believes that, the time has arriyed for .the public of ••' this Dominion to understand -what is. the meaning .of bank exchange. Perhaps, to explain the matter to the layman; it is as well to inform the latter that ever since .the first bank; opened its doors for business m this young nation, none .of its inhabitants has ever, been truly and ; fully informed' of the meaning' of "exchange"; m fact, such a financial matter when it does arise is a mere •bagatelle. Exchange is the profit that is made by. the sale and purchase of bills of exchange or ; of international fiscal requirements; that. is. to say, m the latter, case, the sale of Government bon,ds and- other securities, of like nature , and which as: a matter , of . fact rarely concerns us out here. London has for many years been the chief financial centre of the world. It is at that point that all of :the international requirements, the buying of bills or Government securities, have habitually drifted and made it the financial clearing house of the world. Only very few Continental, Eastern, and American bills have a bearing upon our commercial requirements, so that thes 3 . matters may be left out of' consideration here;\ It must, hWever, . be pointed out that m. the case of all international exchange; transactions m the past, the, basis by which the balances m favor , or against various countries' transactions had to be equally or theoretically ■ . . •■•.'•..' SETTLED IN GOLD. Between the. price of exchange (that is, the buying and selling of commercial bills or Government bonds) and the cost of removing gold from place to place, there has always existed a small margin of profit to the banker or dealer m bills. This method is one of the evolutionary developments of old established commercial experience, and this system", up to the time of the recent war, has continued for hundreds, of years. It was found to lie simple,- effectual, economical, and yet withal profitable to those who by reason of the .vast turnover m this class of business were able to. amass enormous fortunes. , Since the war, gold has to all intents and purposes been buried out of sight, and the use of the term "ex-, change,!' bearing m mind that there ia no gold available either for shipment or transhipment nowadays, is no longer a matter of a gold basis-but one which seems to be more akin to a systematised form of harsh exploitation of the necessities of the hour. The. banks m this .country sweetly babble; of "exchange," well knowing that goid has nothing whatever to do with the imports and the exports of this country. We export more than we import, therefore this Dominion is a creditor of London to an enormous, extent. The funds created by the energies of our people who are laboriously toiling as primary producers are constantly drifting out of the counti-y and the banks are taking the fullest advantage of the situation thus created and are charging extremely high rates for what they are pleased to call "exchange."- Now, since there is.no such .thing as the movement of gold we are content here to accept a paper currency arbitrarily created by the banks themselves. What "Cambist" would like to see now. is the REMOVAL OF THE RESTRICTIVE ' HOLD by the banks upon the issue of . their own paper currency; that is to say,

r for instance, that if our banks are having seventeen- million, pounds of New .Zealand money m" their coffers, m London, they should adjust the matter by issuing the same amount of paper money here. These -figures are, probably well below the mark, but they will do to point out how this situation can be relieved. A. fair thing. is a fair thingy and if when gold was a move-able-commodity, and also the basis of exchange and currency, the charges for exchange, were very small indeed, why. not face the facts as they stand, disregard- ■, gold entirely apd come straight down ,to a- paper credit? , The banks doing^busiriess . here can issue, if they will, twenty-three million pounds of paper money. -, They only, have about a quarter of that privilege iii circulation. In setting- our paper money free, m the manner indicated above the 'banks would still be able to make, a profit for themselves. Suppose it was 'no greater than what, they were, able to obtain, on a gold basis, they would be doing a tremendous good to this , country, by reducing' their present : avaricious demand upon the community m .this matter of so-called exchange. The sooner the dust is removed from , the blinded eyes of politicians, bankers,, merchants, moneymongers, and the p.ublic at large regarding the exchange exactions the quicker .will this country enforce greater energy m every department of trade and production. The banks seem to claim- that they are sticking conservatively to: settled exchange methods, but , : THEY FLATLY . REFUSE . to. notice that they are not at present dealing with ' the same sort of conditions as if they were upon the oldfashioned and splendid gold basis of the past. bankers and politicians are: challenged to adjust themselves to the exigency. of a; purely paper currency unnaturally restricted far below its legitimate requirements. As there is no gold and- only paper, therefore, let it .be paper for paper and the country will find that paper is cheaper to. print and issue than' the handling of the royal metal which is now^buried m the vaults of the banking houses. The banks may prate about "economy' and our worthless politicians may spout about "work." Let the former put theory and economy into practice, and let the latter prove that they really know something about healthy work. To charge 19 per cent, interest for the use of money expressed m a demand draft on London is not economical business. It is the wildest kind of extravagant service, and it, would disgrace the ethics of ordinary money lending. It is up to the banks to reduce the cost of these services. Will a State bank have to come to the rescue? .'