THE EXCHANGE PROBLEM.

Otago Daily Times, Issue 19317, 1 November 1924, Page 18

THE EXCHANGE PROBLEM.

TO THE EDITOR. Sib—l wrote a letter in your issue of Saturday, 11th inst., in connection with this problem, and hoped someone would, ere this, have shown mo wherein I was wrong—if wrong at all—in my proposal to move for legislation both in Great Britain and the dominion, to release the large credits lying in London and unable to be moved to the dominion. As you are aware, I proposed that wo sell our credits to the Bank of England and accept a special note which tire Government would hold as a guarantee and our banks would then be empowered to issue New Zealand notes to the amount held by the Government. This would not inflate onr cur* rency any more than if we received the sovereigns; but one tiling I hold it would do, and that is, it would bring down, the rate of interest and the Government and private borrowers would not have to pay the rates at present demanded. It appears to me that it we worked in this way there would not be the shortage of money for genuine business expansion that at present exists, and that it would Ultimately lead to us lending to the Government cheaper money than it is at present able to command. Since my first letter, I have heard of one man who got over the exchange problem, and he did it in this way. He had a large credit in London which he realised and invested in London in shares in a concern with a British and Colonial Register. He then applied to have these shares transferred to the New Zealand Register, and was able to dispose of them locally at a profit. In this case New Zealand certainly has an asset, but it does not mean more currency, and this is onr need at the present moment. We cannot) all buy shares and sell them in New Zealand or the prices would inevitably fall. As far as I can see, if one man can secure his London credit by paper shares, a Bank of England promise to pay would be infinitely better as far as security goes. The exchange question I notice has been raised in our Parliament, but no satisfactory answer, as fax as I can see, has been given, and we are just where we were. Now, I am of the opinion that if we could get our credits out to the dominion in the way suggested, there would be no need for onr Government to borrow in Great Britain: it could get all it wanted in New Zealand without inflicting any hardship, and as loans fell due in London these special Bank of England notes could be sent home to the Bank of England, and that institution would pay by book entry, for that is all it means. In time, we should have little or no foreign debt, and our banks, instead of being forced to lend in London at a lower rate of interest, would do much better by lending the money in the dominion to the Government and private industry at a fair rate of interest, and things all round would be very much happier for all concerned. The coming wool and produce season is going to add to our big credits in London, and the rate of exchange is, in consequence, not going to fall, the natural inference being that it will increase. The banks cannot go ’on lending in London at low rates of interest and reduce the exchange rates if they are to pay dividends, and I feel certain that, if some means could be found for altering the present state of affairs, a load would he lifted from the shoulders of our banking authorities.

Something must be done, and I have made my contribution. I am not a financial authority, and therefore do not lay down this proposition as a remedy, but merely aa a proposal which appears to me to be worthy of consideration, and I will thank anyone who can reasonably show me where I am wrong in supposing this can be got over in this apparently simple manner. To me it appears as if it will b© just a reversal of the old system and Britain will be borrowing from the dominion, giving her promise to pay instead of our having to go to tho London market for what we cannot bring out here. Every loan in Great Britain only makes the load heavier.—l am, etc.. Exchange.