BANK OF ENGLAND

Otago Daily Times, Issue 23702, 9 January 1939, Page 7

BANK OF ENGLAND

SPECTACULAR TRANSACTION GOLD SOLD TO EXCHANGE FUND A BRAKE ON SPECULATORS (United Press Association) (By Electric Telegraph—Copyright) LONDON, Jan. 7. (Received Jan. 8, at 7 p.m.) A laconic announcement posted on the Bank of England’s notice board that the bank had sold £200,001,571 of gold informed the public of the most spectacular transaction ever seen in the city. The transfer probably raises the exchange fund’s resources to £450,000,000, which is more than sufficient for any conceivable contingency and unquestionably knocks out speculators against sterling. It resulted in a violent rebound of sterling from 4.63 J to 4.671 donars. The transfer represents gold previously sold -to the bank by the exchange fund; therefore, it is a retransfer. The bank’s own gold reserve is reduced to £ 127,000,000, worth £209,000,000 at current prices.

STERLING-DOLLAR RATE A SHARP RECOVERY (British Official Wireless) RUGBY, Jan. 7. (Received Jan. 8, at 7 p.m.) The movement of bullion in which the Bank of England appeared as a seller of £200,001,571 of gold in bars and which represents the retransfer of gold from the bank to the exchange equalisation fund, was followed by a sharp recovery in the sterling-dollar rate. In connection with the retransfer of the amount—£3so,ooo,ooo at current price—the Treasury, on the representation of the bank and in conformity with the Currency and Bank Notes Act of 1928, has made a minute increasing the fiduciary note issue to £400,000,000. The official statement adds:—" The Government intends to introduce legislation when Parliament meets to amend the Act of 1928. The fiduciary issue fixed by 1928 at £260,000,000, subject to variation, was raised from £200,000,000 to £230,000,000 on December 8 last to meet Christmas currency demands. Apart from this and a similar increase of £20,000,000 at Christmas, 1937, it has stood at £200,000,000 since December 15, 1936, when it was reduced from £275,000,000.” STOCK MARKETS SUFFER SEVERAL FACTORS OPERATING

LONDON, Jan. 7. (Received Jan. 8, at 7 p.m.) The reimposition of the ban on speculative exchange transactions, forward dealings in gold, and bank advances against gold, marks the further stage in the struggle against sterling depreciation, the immediate result of which is a momentary improvement in the sterling. Despite the fact that money rates have returned to normal levels, the dollar premium still yields nearly 2J per cent. If that persists, cheap money mav be untenable. The stock markets suffered from the sterling uncertainty, business being exiguous and mainly due to political apprehension and the unsatisfactory position on Wall street and the uncertainty in the British economic outlook. While giltedgeds fell, colonials were cheerful, New Zealand stocks putting on a point or more in response to the new import regulations. Australian stocks showed generally improved prices. FIDUCIARY NOTE ISSUE RECORD FIGURE REACHED (British Official Wireless) RUGBY. Jan. 7. (Received Jan. 8. at 6,30 p.m.)_ The two points most stressed m to-day’s comment on yesterday s transfer of gold of the market value of £350,000,000 to the exchange equalisation fund by the withdrawal of the nominal £200,000,000 from the gold reserve of the Bank of England and an increase of the fiduciary note issue by £ 170,000,000 to the record figure of £400,000,000 are: — , 1, That the latter increase does not involve any credit inflation, since the total note issue will, in fact, be reduced by £30,000,000 — the amount of the temporary increase made to meet the Christmas demands. , ~ ~ 2. That the gold holding of the exhange equalisation account, as increased by the transfer, places the account in what the Financial News calls “ a virtually impregnable position.” , „ Editorially, the Financial News expresses the opinion that yesterdays “ bold, decisive move ” Is “ the most far-reaching development concerning sterling exchange since the exchange account itself was established six 'years ago.” Emphasising that the country’s monetary gold stock still exceeds £650,000,000, it says:—“ Following so closely upon the reimnosition of the embargo on foreign issues only a fortnight ago and the request to the banks to discourage forward gold dealings or undesirable exchange operations, announced only on the preceding day, yesterday’s move strikingly illustrates the determination of the authorities not to lose control of sterling.” The journal considers that there can be no doubt that the exchange fund is now in a position to withstand almost any conceivable pressure to which sterling may be subjected. Move Fully Justified . The Financial Times also considers the transfer of gold and the increase of fiduciary issue, each of which is on a scale without precedent, were fully justified since it argues that markets abroad have not properly appreciated that the combined gold holdings of the bank and the fund represented the country’s monetary reserves—a lesson they cannot now fail to learn. The Financial Times points out that since the Bank of England has acquired gold to a total of just over £190,000,000, valued at the statutory price, since Great Britain left the gold standard in September, 1931, the transfer from the Issue Department of £200,000,000 leaves the bank in approximately its 1931 position, which, from the internal point,of view, was entirely satisfactory. Moreover, at the market price of the remaining gold reserve

of the bank, as the city editor of the Times reminds his readers, amounts to some £230,000,000. The Financial News raises the question whether the intention to amend the Currency and Bank Notes Act announced by the Treasury in last night’s statement may foreshadow the taking of the neces sary powers for revaluation of the bank’s gold reserve should that ever become necessary or desirable as a further reinforcement of the defences of sterling, which, as fortified by yesterday’s developments, a diarist in the Financial Times describes as “ the Maginot line of the pound.” EXCHANGE FUND’S LOSSES £10,000.000 SINCE CHRISTMAS LONDON, Jan. 6. The Financial Times says the market welcomed the gold embargo. Considerable anxiety was aroused over the extent of the flight of the pound. It is estimated _ that since the renewal of pressure since Christmas the exchange fund has lost £10,000,000 in gold.