FINANCE AND THE WAR

Otago Witness, Issue 3274, 13 December 1916, Page 23

FINANCE AND THE WAR

THE STRENGTH OF GREAT

BRITAIN

Mr Beauchamp, chairman of directors ol the Bank of -Now- Zealand., speaking on Friday at the half-yearly mooting of that institution, observed tnat one of what might bo called the wonders of the war was the marvellous ease with whioi:, eo far, the enormous financial requirements for military and other purposes of Great Britain and her Allies had been mot, whilst at tho same time London had maintained its traditional reputation as a free gold market. He quoted the Statist of 2<srd September last as saying that whereas. immediately on the firing of the first shot, Germany shut down on her gold and had ever since hoarded it jealousy. Great Britain from tho start, and the other Allies at a later period, had utilised their enormous public and secret gold reserves iis such reserves always'should be utilised in. times of cmcrp;ency. "So far from shutting down upon our own gold supplies, wj must have sent abroad since the war began very little short of £250,000..000, most 0,l which has come from our own stores (itt' eluding tho output from South Africa), th( amount contributed by the Allies, though useful and timely, being, of course, rnode< rate when compared with the huge size of tho credits granted by us. And yet, in spite of the freedom with which this golq has been outpoured, our central stock ol the metal is some £15,000,000 greater than it was previous to the war, while in addition nearly £50,000.000 of gold has, ol course, been set aside on account of tha note currency reserve." Tho "central stocks" referred to wore tho stocks of the Bank of England, winch on the 22nd July, 1914, amounted to £38.564.000, and on the Ist November last thev stood at £54.426.000—an increase of £15,862,000. In addition to the stocks of the Bank of England, considerable gold reserves were held by tho large British banks. This position must in the circumstances be regarded as satisfactory. and indicative of sound finance and strong- credit. Tho Bank of England rate was advanced from 5 to 6 per cent, on 15th July last, and the following day the rates for British Treasury bills were advanced to: Three months, 5i percent. ; six months, per cent.; 12 months, 6 per cent. At the end of September the rate of Treasury bills was fixed at 5i per cent, for all currencies, and a now iseuo_ of Exchequer bonds was announced, carrying interest at 6 per cent, and maturing en 16th .February, 1920. Tho design of this arrangement wa-s doubtless to divert money from the short-dated Treasury bills (of which an enormous amount soma £l,o4o,ooo,ooo—were current) to the longer (though still short) term Exchequer bond. Tho effect of tho new Exchequer bond issue on a 6 per cent, basis was very depressing upon all investment stocks, and R permanent lowering of ciuotations on the exchanges took place. Tho British Government appeared to prefer to finance meantime on'short-dated bonds, and Was apparently desirous of postponing the funding of it's floating liabilities in the expectation that some decided change in the war situation in favour of the Allies would afford tho opportunity to float a loan on more favourable terms than would at the present timo be obtainable. The amount thus outstanding on these short-dated obligations at tho present time exceeded considerably £1,000.000,000, or, if Exchequer bonds bo included as short-dated obligations, £1,500,000,000.

The total British Government borrowings sinco the commencement of the war amounted, at 16th September last, to £2,405,269,C00, and as the expenditure was at. the rate of about s'± millions per diem, the debt would have since been largely increased. And still the outlay went on. Britain was, however, becoming more selfreliant ns time passes, and was consequently spending less outside and more within her own borders. This meant that while the indebtedness of the State as a collective unit was enormously increased, the wealth of the individuals, constituting the State in which the borrowed money was expended, was also largely increased. The wollbeing of the individuals comprising the State is promoted, though the State itself may be driven to the verge of financial extremity._ Britain, however, in the meantime was in no such extremity. The Chancellor of the Exchequer in an announcement on the subject a short time ago, stated that the country's finances were absolutely sound, and that, assuming the war continued until 31st March next, the existing taxation would cover all the necessary peace expenditure, provide all the interest on the national debt and a sinking fund which would redeem the whole debt in 40 years, and, moreover, give a surplus which would admit of the abolition of the excess profits tax, besides reduction in other taxes. Surely a country with such a record might cheerfully face a future of darker portent than that at present in view. Whilst the demands _ for munitions supplies from the United States of America were now greatly reduced. considerable importations from America both of munitions and merchandise were still going on to Britain and British dominions, and an adverse state of the American cxchanic continued. By careful manipulation, however, it had been found possible to prevent the violent fluctuation in' the exchange rate which marked the autumn of 1915. and for practically the whole of the current year the rate had been fairlv steady. The war has effected a tremendous clnngo in the financial position of the United States

relatively to the rest of the world. America had, for tho time being, become & lending nation, and, having regard to the wonderful expansion of her exports to Great Britain and other countries, one did not wonder at the amazing growth of her wealth. Gold had poured" into America to such an extent that Americans were now coming to regard with disfavour settlement of indebtedness by that means, because shipments increased to abnormal and unnecessary extent their holding of unremunorative fund?, and it was apprehended, accumulation may lead to a period of reckless speculation in _an endeavour to provide employment for idle resources. America was consequently becoming more favourably disposed towards settlement by loans instead of by cash. A few months ago a loan of £30,000,000, known as the "collateral loan" was arranged, it being supported, collaterally, by deposit of American, Canadian, and other securities borrowed by tho British Government from British-investors. The British Government undertook to pay interest on the borrowed securities at slightly better than the security rate and eventually to return the securities to tho owner, or, in tho alternative, pay for them at a price agreed upon, which is better than the market price for the time being. There was, however, now talk of a further loan without any collaterals, which in itself indicated the growing confidence of the United States in Britain's ultimate victorious issue from the war.