CURRENCY INFLATION.

Otago Daily Times, Issue 21215, 22 December 1930, Page 12

CURRENCY INFLATION.

TO THE EDITOE. SIE, —In reply to Mr MacManus we can only say that Mr , Arthur Kitson must have been misreported because what he is alleged to have said is plainly untrue. You have published the names of the Bank of England directors, -and this should satisfy Mr MacManus that he has been misled. We have read both Mr Kitson's remarks and also the quotation from the London Sunday Chronicle, and they do not convince us, .because facts prove that they are incorrect. , So far as Mr Snowden is concerned, we have in the past also quoted what he said in 1928 at Birmingham, namely, that the raising of the bank rate on Saturday put 2,000,000 men out of work on Monday. We quoted that to show how Mr Snowden has changed his opinion after his accession to office had given him an insight into actual facts. In October, 1929, he said at Brighton that w it is never wise to attribute any result to any one cause,” and lie quoted figures to prove that since the bank rate was raised in February, 1929, the number of unemployed had fallen by 200,000 and exports had increased by £8,000,000. Again he said that “ a rise in the bank rate is, under existing conditions, the only means we have to restore unfavourable exchanges and to regulate the basis of credit,” and he then reassured his audience by saying “The fact remains that the British banks are pre-eminent in the world for soundness.” There is a natural and very prevalent misunderstanding oyer the meaning of the and its influence on industry, ihe bank rate is the official minimum rate at which the Bank of England will discount bills. It differs from the market rate of discount in that it is normally higher and_ is not a constantly fluctuating rate, but is fixed every Thursday. For its customers the Bank of England discounts at the market rate, not the bank rate. The main effect of the bank rate is to cheek the export of British capital to countries offering a higher rate to attract money. If this is drawing away too much capital the rate is raised and lias the effect of bringing foreign capital to the British market, and thus increasing supplies of credit and cheapening its cost to British industry. To assume that the bank rate (as fixed by the Bank of England) interferes with industry would also assume that other countries get their money at lower rates, and to assume further that all the money employed in industry is borrowed from the banks, whereas the borrowing from banks is merely a temporary accommodation. Many industries are permanently and voluntarily financed by raising money on preference shares at 7 to 8 per cent., and these rates are paid whether the bank rate is 3 per cent., 4 per cent., or 5 per cent., and paid voluntarily. Thus Mr MacManus will see that the bank rate declared by the Bank of England has nothing to do with the rates referred to in his quotation from Mr E. Canney’a speech, nor should it be confused

with the ordinary rates of interest charged by trading banks for loans to their customers.

Believers in a State bank are obsessed with_ the idea, and no argument will convince them, and they are very fluent about things being done “for the benefit of a few bankers, interest drawers, and money-lenders.” They will not realise that bankers are the servants and trustees for the 1,000,000 of small investors who have entrusted them with their savmgs. They will not realise that even a orate bank would be in the same position, as is evidenced by the fact that the Commonwealth Bank has refused to be bludgeoned into an unsound policy. Again, they do not seem to realise ‘that if a otate bank ran its business on unsound ■,5, s f . would not entrust it with their money, and it would not have any to lend, unless it used the printing press and made paper money to debase the currency. Is there so much disgrace m being a drawer of interest? We do not depositors who lend money to the State through the Savings Bank will agree with this. We 'shall not take up more of your valuable space, however, in trying to convince Mr MacManus of the dangers benind his theories. If he believes honestly that private banks will deliberately create a depression, which must react on themselves and their depositors, then he will believe anything. Yet this is what he says they did in Australia in the nineties.—We are, etc., _ N.Z. Welfare League. December 16. •