ECONOMIC SITUATION

Poverty Bay Herald, Volume LXI, Issue 18587, 22 December 1934, Page 15

ECONOMIC SITUATION

BRITAIN'S FINANCES

FALL IN INTEREST RATE

CHEAP MONEY’S INFLUENCE

(British Oflicial Wireless.)

Rec. 3 p.m. RUGBY, Dec. 21. A comprehensive survey of the financial economic situation was made by Mr. Neville Chamberlain in the House of Commons in the debate on the adjournment for the Christmas recess. Dealing with the spreading of the influence of cheap money, lie referred in the first place to the saving in interesteffected. The conversion of the 5 per cent, and other loans resulted in a saving of £37,OCO,CCG annually in interest on the national debt. Following upon that was the consequential reduction in the rate of interest on short loan money, and although that was not of a permanent character, yet it was helping the finances at the present, and between this long term and short term reduction in interest they had been able to reduce interest costs on the national debt, by something like 20 per cent, since 1931. That was a considerable alleviation ol the country’s burdens, but it did not stop there. The heavy fall in the interest rate in London affected other parts of the Empire. There had been a number of conversions by the Dominions, and in particular Australia had been able to effect some very important conversions in her debt, benefiting the finances of Australia and increasing her purchasing power, which was of benefit to Britain. Now loans were being raised in the colonies on practically the same basis as they would he raised here for the British Government. The colonies* had thus fully shared in the advantage. The same applied also to the borrowing of the local authorities. Some of the larger authorities had raised money at 7> per cent., and the smaller authorities were able to borrow from the local fund at from per cent. Those were nonpermanent, loans. Long term borrowers again were able to obtain loans something like one-third cheaper than at any time since the war. That, undoubtedly was a very great advantage. As for industrial borrowers, they had been able to convert something like £100,000,000 since the National Government took office, resulting i,n a saving to them of about £1,000,000 annually. Dealing with tho effect of cheap money in the industrial field, Air. Chamberlain referred to the work of the Bankers’ Industrial Development Company, formed largely at the initiative and with the assistance of the Bank of England for financing large industrial corporations after a proper examination of their prospectuses and that of credits. designed toj IproiAi'do medium loans' of smaller amounts to small firms.

Regarding the situation in Lancashire, which had been raised during the debate, 1m agreed that a good deal of trouble arose- out of the financial chaos during the 1920-21 inflationary boom. Its lesson was that they should not repeat it in attempting measures which bring other parts of the country into the same condition.* THE POUND AND DOLLAR

Mr. Chamberlain dealt with suggestions for attempting the stabilising of values between the pound and the dollar. Here, he said, the question was that of the level at which stabilisation should be effected. Stabilisation on, a cojwnpri .international standard of currency would bo very helpful. “We all hope it may be for the best in all interests,” he added. The levels of .currency in . the countries of the Empire arid those countries linked with sterling had remained very stable for three years,, and the exchange of goods and trade showed a very gratifying increase at a time when international trade generally was inclined to shrink. At present sterling had on 'one side a gold block and on the other the dollar, also on, the gold standard. Tho real difficulty was that the dollar and franc were not iff harmonious relationship. In consequence of this disharmony the pound, which stood between the two, was dear in terms cf dollars, but not so dear in terms of francs. The present freedom to move in either direction, and thus achieve a fairly stable position for the pound, would be lost if they had stabilisation.

Au attempt to stabilise vvliile dis Harmony existed would result in a position where they had to go off the gold or follow a policy of inflation. In the present circumstances they could not afford to risk becoming involved in stabilisation and tliup rob themselves- of freedom to move the pound as required. MONETARY POLICY Passing on to the relations between the Government and the Bank of England, Mr. Chamberlain (accepted the view that the ultimate responsibility for thy country’s monetary policy must he with the Government, and lie said they were not on the gold standard. The relationship between the Treasury and tin, bank must bo closer than ever. Indeed, the whole management of sterling was discussed continually between representatives of the Treasury and the bank. On this question, however, lie called attention to the generally accepted resolution at Genoa in 1922 that the banks, arid especially banks of issue, should he free from political pressure and lie conducted on the lines of prudent tinaric?. With regard to the financial policy generally, Mr. Chamberlain said it linfl not changed in any material aspect since, on behalf of the Empire delegates, ii had been declared at the. London conference. Ho believed that if they continued to pursue the policy laid down at the conclusion of that conference it would continue to produce good results, lie saw no reason why they should not anticipate a further rise in wholesale prices of primary commodities, which probably would do most to oyercome jnhiCvmoiiious* lolcmenta ~in thq world’s currency system, and he looked forward with confidence to the time, when they could once again embark on an international currency standard. In the meanwhile he saw no reason for pessimism. The home trade had not yet reached saturation point, and foreign trade, if not back tp the old levels, still had ail upward trend.