WORLD FINANCE

Otago Witness, Issue 3994, 30 September 1930, Page 10

WORLD FINANCE

INTERNATIONAL PROBLEMS.

CO-OPERATION IN BANKING. WELLINGTON, September 24.

International finance and its problems were referred to by Sir Otto Niemeyer in an address given at the New Zealand Club luncheon to-day. The Acting Prime Minister (Mr E. A. Ransom) was present. Sir Otto Niemeyer said:—“ It may seem odd representative of the Bank of England should visit New Zealand, but is it not perhaps symptomatic? Is it not a symbol of the need which we feel for closer relations and a more accurate understanding? It is every day becoming more apparent that every considerable financial and economic problem is less and less a national problem and more and more an international roblem. Every war tends to become a world war, and even those who remain neutral do not escape from its economic effects. Such a problem as unemployment, which used to be a local matter, is rapidly becoming an international matter, afflicting practically all countries at the same time, and possibly only curable in the end by international agreement and international action. Overproduction is not a local problem; it is a phenomenon which appears in all parts of the world and in all branches of production.

“ World politics are becoming more and more international; world finance is becoming more and more international; and world trade and industry are becoming more and more international. New Zealand cannot in her own interests stand aside, from international affairs or close he eyes to international happenings. They affect her intimately and domestically. You have only to look at the present prices of wool and agricultural produce to see how closely the fortunes of New Zealand are bound up with events at the other end of the world. “ I think I need make no further excuse for dwelling on two great international movements among many others.' The first is the growing co-operation between the central banks of the world and the second is the growing political co-opera-tion which centres in the League ot Nations. You must distinguish a central or reserve bank from an ordinary trading bank. A reserve bank, such as exists it Home in the Bank of England, or in America in the Federal reserve system, or in South Africa in the South African reserve bank, or in various countries of Europe is not mainly or normally a bank which deals with the ordinary commercial banking business of a country. It is rather a bank which holds the ultimate reserves of a country, including the cash reserve's of the other banks, and whose general mission may be described as that of en 'eavouring to maintain the parity of national exchange. “ With the great currency disturbances which have arisen out of the war—disturbances which deprived of any value at all the currencies of Germany and Central Europe, and reduced the value of the French and Italian currencies to about one-fifth —-the problems facing the central banks obviously became much more difficult. There has arisen a perception of the fact that a central bank, too, must have an international outlook. It is not possible for them to carry out their functions completely without an understanding and co-opera-tion with the corresponding central banks of other political units. If you reflect on how greatly the exchange problem depends on the level of prices in any important country which buys your exports you will see at once how closely the functioning of one central bank depends on the policy being pursued by another. If you take again the question of the stability of the value of gold in relation to commodity prices—a most important world problem—it is obvious that unless there is "a. measure of agreement between the central banks as to the amount of gold they respectively think it necessary to hold there will be a scramble for what gold is available, and consequently a growing danger as the price of gold goes up of commodity prices falling, to the ultimate disadvantage of all parties. Co-opera-tion between the central banks, a slow and difficult process, has been making steady progress in the last five or six years and is now perhaps taking a new step forward in the foundation of the Bank of International Settlements in Basle, which, though primarily a piece of machinery connected with the reparation payments has also in it, we hope, the seeds of a closer and more formal co-operation between the central banks. One of the things one would like to see would be an accelerated growth of similar co-operation between, say, the Bank of England and the dominions. I believe myself that is one of the most urgent problems within the British Empire. . “ The second point on which I would like to dwell is the international cooperation which takes place through the League of Nations. My active interests in the League began in 1922 when I first became a member of the League Financial Committee. I have been a member of the committee continuously since then and was chairman of the committee in 1927, My approach to the League and its work has not been from the side of high ideals or international politics, but from the severely practical standpoint of a financial administrator. The Financial Committee has about 12 members, each a national of a different country. These members do not represent their countries in the normal official sense, but are thosen for their

expert financial knowledge, and as persons of financial standing in their own countries they are largely well-known bankers. The committee is truly international and absolutely independent. “ When we started we were all strangers to one another, but by constant association and discussion we have become a united body, knowing each other well and trusting each other. We have evolved a definite doctrine and a united spirit in dealing with public financial problems. It has been our duty to advise the council on those financial reconstructions in Europe which have been undertaken under the auspices of the League, and you will remember that the League has no power to enforce its advice on anyone and no money of its own which it can lend to anyone. We have had, therefore, in forming our reconstruction schehies not only to decide among ourselves what is a practical solution of a difficult financial problem, but also on the one hand to persuade the country concerned to adopt and carry out our advice, and on the other hand so to frame our schemes as to secure the support of the investing markets where that was necessary. “ The first country with which we had to deal in 1922 was Austria. Austria at that moment was the despair of Europe and of herself. We were able by exceedingly drastic measures to establish a plan which restored the Budget equilibrium in about six months. To carry out this scheme for a year or sc a distinguished Dutchman acted as the League’s Commissioner - general in Vienna, and for some time an expert adviser was a member of the Austrian Central Bank staff. That scheme, which was an experiment for the Financial Committee which had to elaborate new and untried methods for an unparalleled situation, and also an experiment for Austria and the Powers of Europe, was from the first completely successful. The Budget equilibrium has never been seriously threatened since; the currency has been absolutely stable; in two years the foreign advice could safely have been withdrawn; and Austria is now a wellordered and reasonably prosperous financial community. It was the international prestige of the League of Nations which enabled us to get from the neighbours of Austria essential guarantees of her territorial integrity and a necessary adjustment of her reparations. It was the prestige of the League of Nations which enabled us to claim in half a dozen international markets the necessary financial support from outside. And it was the prestige of the League of Nations which put at the service of Austria the expert advice which she received and persuaded the people of Austria that it was wise to accept that advice.

“In later years we have dealt with the very similar case of Hungary; with the case of Greece and the case of Bulgaria. We have also been engaged in currency advice in Estonia and Danzig. I have heard it said: ‘This is all very well, but why should the League bother itself about the domestic troubles of second-class Powers?’ I think the an- 1 swer is as follows, putting all other considerations aside, and so far as the Financial Committee is concerned we do not claim to be humanitarians or to take any action except on strictly economic grounds. I think the answer is that in the first place order and tranquillity are essential to the maintenance of internal trade and commerce, and in the second place economic misery is a fertile breeder of war. No man can say where starvation in Vienna or misery in Budapest or destitute refugees in Bulgaria or Greece might end, and it may well be that those small causes might in the end even touch distant New Zealand. Events in a much less important town in Southeastern Europe crucially affected New Zealand in 1914. “ The moral which I should like to impress upon you, particularly those of you who are interested in commerce and among you particularly those who are interested in primary produce, is that, distant as New Zealand may seem and remote as may be the happenings on the other side of the globe, there never was a time when there were more problems calling for international settlement, when there were more problems which can only be settled internationally, and when it was more important to New Zealand that she should take her full share in such activities.” At the conclusion of his address Sir Otto was accorded a hearty vote of thanks and was presented with a memento in the form of a silver kiwi mounted on greenstone.