EXCHANGE TRANSACTIONS

Otago Daily Times, Issue 21980, 15 June 1933, Page 6

EXCHANGE TRANSACTIONS

The Minister of Finance justly ob-! served, in the comments which he has furnished upon the public accounts for the past financial year, that more than usual interest would centre upon the transactions arising out of the issue by the Government of Treasury bills in terms of the Banks Indemnity (Exchange) Act. Under that Act the banks that are carrying on business in New Zealand are indemnified against any losses which they may sustain as a result of the increase of the rate of exchange upon the transmission of moneys from New Zealand to London and arising from the purchase and sale of exchange. It was estimated by the Minister of Finance, at the time when the inflation of the exchange was forced by the Government on the banks, that the effect of the indemnity arrangement would be to involve the Dominion in a cost of £1,000,000 in a full year. In addition to this, the increase in the exchange rate from 10 per cent, to 25 per cent, throws on the Government an additional cost of £1,050,000 per annum upon the remitting to London of payments due on the national debt. Mr Coates has suggested optimistically that the cost under the indemnity would not be as much as was estimated —that it might not exceed £500,000 and that, in fact, the arrrangement might in certain circumstances not cost the country anything at all. Wellinformed opinion in the Dominion is in profound disagreement with the Minister on this point, and in some quarters the forecasts that have been uttered concerning the probable cost to the country have been of a decidedly disquieting character. Unfortunately, the accounts for the past year do not afford guidance to any reliable conclusion on the subject. The increased rate of exchange came into operation on January 20. It prevailed, therefore, for only ten weeks of the financial year. The Minister of Finance assumed that during this period it would cost the country £350,000. His review of the completed accounts for the year shows that the actual cost was £470,000. But this sum of £470,000 is merely the difference between the amount of Treasury bills (£2,380,000) issued' during the ten weeks under the indemnity -legislation and outstanding at the end of the year and the amount (£1,910,000) that had to be utilised to purchase exchange from the banks. Evidently surplus funds had accumulated to such a considerable extent in London that the Government was required to relieve the„ banks of them, and they must be still accumulating. There was a heavy increase, also, last year in the payments in exchange on remittances abroad —an increase from £374,473 in 1931-2 to £Bl2,4so—and this must in part be accounted for by the inflation of the" exchange. If. the increased rate is maintained the exchange transactions on the part of the Government during a full financial year will, it is to be apprehended, assume exceedingly large dimensions.