THE OTAGO DAILY TIMES SATURDAY, November 5, 1938. LONDON FUNDS

Otago Daily Times, Issue 23649, 5 November 1938, Page 12

THE OTAGO DAILY TIMES SATURDAY, November 5, 1938. LONDON FUNDS

It is impossible to suppose that the Government is not well aware of the need for the maintenance of a strong position with regard to funds held in London by the Reserve' and trading banks. Some indication of its interest in the matter would, however, be desirable, even if it might not be reassuring. From time to time attention has been called to the shrinkage in the amount of these funds, and the latest returns of the Reserve Bank, published yesterday, show that, far from that unfavourable movement having been arrested, the tendency is still steadily downward. On September 26 last the total of overseas assets held by all the banks was £16,107,190, which figure compares with £29,985,000 at the corresponding date last year and £34,028,000 in September, 1936. In respect of the Reserve Bank it is possible to quote figures up to the end of last week to show with what steepness and persistence the fall has continued since, for example, the middle of September. The following table shows, in terms of New Zealand currency, the extent of the London balances held by the bank since September 19:— £ September 19 .. 12,247,005 September 26 .. 11.449,447 October 3 .. 10,594,978 October 10 .. 9,960,235 October 17 .. 9,118,329 October 24 .. 8,313,575 October 31 .. 7,707,897 The comparative figure at September 26 last year was £19,066,000, and at

October 31, £17,595,000. The de-

cline in the year ended October 31 last, it will be noticed, is a little short of £10,000,000. The position thus disclosed must be regarded as distinctly disturbing. London balances are at a lower level than they have been for many years, and they can,- in the normal course, be built up only by a combination of high production and high prices as reflected in export values. The prospect of their accretion in this manner is, however, not encouraging. For the first nine'months of this year the excess of exports over imports was only £6,493,000. It was £13,202,000 in the corresponding period of last year. The trading outlook, therefore, which is dominated by a decline in the volume of production and the continuance of imports at a high level, cannot be held to offer much hope of the replenishment of the funds in London by normal processes before the time, next year, when the Government will be required to meet heavy commitments. There is, for instance, the very material obligation in respect of a loan of £17,000,000 falling due for repayment in 1939-40, which will involve negotiations for renewal. Past practice has been to meet deficits in the balance of payments by borrowing. But the present Government does not approve of that course, though it ought now to be realising that its policy not only threatens to make a loan inevitable, but has also operated to cause nervousness in the very quarters in which the Minister of Finance may be compelled to seek accommodation. Another point of interest in relation to the steady depletion of London funds is that, incidental to that movement, there has been a remarkable reduction in the proportion of reserve held by the Reserve Bank to notes and other demand liabilities. On May 30 of this year the proportion was 80.8; on June 27, 75.8; on July 25, 70.6; on August 29, 67.2; on September 26, 60.8; and on October 31, 46.09. During the same period last year the figure never varied except fractionally between 78 per.cent, and 79. The fact that it is now down to 46 per cent, may well be deemed to excite concern.