BANK EXCHANGE RATES

Poverty Bay Herald, Volume LV, Issue 17407, 4 November 1930, Page 5

BANK EXCHANGE RATES

EFFECT OF ALTERATIONS NEW SYSTEM CRITICISED (Special to fho Herald.) (Ml I.* ISTOHUKOH’, this <lny. On the efficacy of the rationing scheme adopted by the banks depended t lie protection of New Zealand funds in London, said I‘rofessor A. IT. Tucker', professor of economics tit fan - tciTmry College, discussing to-day the new exchange rates for New Zealand on Australian hanks, which have been announced. “The future will probably bring the New Zealand exchange closer to i par with London. The Australian | exchange seems likely to show further depreciation, and as a result the disparity between New Zealand and Australian funds appears likely to increase rather titan decrease," he re marked. “The new exchange rates | on Australia announced by the banks tire obviously designed to pro,vent the flow of money from Australia to New Zealand, and possibly from Australia, through New Zealand, to London. A short time ago Australian and New .Zealand rates were at par, and in both countries .roughly' similar premiums had booii paid to Imy money in l.ondun. Under those conditions it was possible for'Australians lo bby money in New Zealand, ami with, the proceeds purchase funds in London. “In view of flhe relatively larger size of Australia, .and the -scarcity, of Australian funds in London, it was possible that sufficient Australian purchases would he made through New Zealand to deplete our London exchange funds, and so endanger New Zealand's exchange stability. A FICTITIOUS LEVEL. “More recently, the Australian 'exchange in London .was raised to a premium of about 9 per cent., while New Zealand’s was about f> per cent. If the Australian-New Zealand rate remained at par it would obviously be very profitable for Australians to buy funds in Now Zealand and use them to purchase exchange in London. “The rise in the New Zoaland-Aus-traliiin rate to balance the difference between the New Zealand-London and the A list ralian London rates was. therefore, expected, but the curious feature of the announcement is the statement that the new buying rates are subject to a concession of roughly 4 per cent, for ordinary trade transactions. This means that the new rates it re to operate at the discretion of the banks, and that the protection of New Zealand funds in London rests, not on i, at a fair economic price for xctt.-ir.ge, but on the efficacy of the iat lotting scheme adopted by tlu

“it is probable that the Australian rate on London is much more favorable to Australia than would be the case were rationing abandoned, and the rate allowed to settle at a level which reflected the respective values of sterling and Australian money. The New Zealand rate on London, on the other hand, is almost certainly less favorable to New Zealand than would be the case if we were not influenced bv Australia. The exchange position lias been somewhat unreal for both New Zealand and Australia for several months past.”