HIGH EXCHANGE RATE

Poverty Bay Herald, Volume LXIII, Issue 19023, 25 May 1936, Page 10

HIGH EXCHANGE RATE

“THE PUBLIC PAYS” SCHEME TO RECOUP BANKS EX-1 ’. ANKER’S EVIDENCE SYDNEY, -May 12. Giving evidence yesterday at tin* Royal Commission inquiry on Ranking and Money, Albert C. Willis, retired bank manager, formerly of the Loudon and E.S. and A. Banks, contended that the burden on the general public in paying heavily through the exchange rate between Australia and London was due to a plan obviating the necessity for the bank shareholders facing their trading losses after the banks had advanced tot. liberally on the values of land. Mr. Willis said that he was formerly manager at the head office in Martin Place of the London Bank, and had visited Europe, America, and China to study banking. It was discovered when the price of wheat, wool, and other products fell heavily at the commencement of the present depression, that the banks had advanced too liberally on the security of the lands which produced . those commodities. Land values had been allowed to go too high, being based on the returns at the then ruling high prices of all that was produced thereon. He admitted that it was difficult to control or cheek an undue rise in land values, but .contended that payment for failure to do so was, and should be, the direct obligation of the banks and other financial concerns which made large profits and put by large reserves by advancing on the security of such lands. “It is not; logical,’’ he went on, “nor is it expedient, that the general public, which does not share in the large banking profits in good times, should be asked to shoulder the losses accruing ns a result of the slump. Yet. this is what has now happened.” By way of illustration, he said that instead of again meeting the situation arising in the depression in the same manner as after 1893—by the writing down of the values of securities to present worth, and writing off their losses—the banks were able to take advantage of a much less unpleasant course. The Government, through 1 ho Commonwealth Bank, was asked to agree to raising the exchange rate between Australia and London to 30 per ,-ent, later reduced to 23 per cent. TRANSFERRING THE BURDEN “ It might be suggested at this stage l hut the ruling prices of our exports niight, on inquiry, be found to be uneconomic; that, in effect, the Australian community as a whole is, by operation of tho exchange, really finding part of the purchase money paid by the European buyers for this country’s products,” he added. “Tne effect; of this was that for all our wool, butter, meat, etc., which was exported, the producers received ,ut first 30 per cent, later 25 per cent, more than they would otherwise have received. When I say the producers received this 1 may speak loosely. 1 mean that the payments into their bank accounts were 25 per cent greater on account of their exportable products than they would otherwise have been but for llie high exchange rate. If this had not been agreed to -the banks, which had till been making great trading profits for many years then past, would probably have been forced again to face trading losses clue to the necessity of writing down values of their sec.nri-

I ies. “The proceeding described as having been followed this time is all legal as f.ar as it goes, hut this plan of obviating the necessity of hank shareholders facing their trading losses when they should do so has ben carried out at the expense of the general public purse. It is always being asked, ‘Hut who pays the exchange?’ The answer is, of course, the general public, and roughly the bill they met for the year 1034-35 is as follows: (1) Exchange on interest, payments made by A ti st i' alian Governments on their London and other outside borrowings £6,000,000 (2) 25 per cent on cost of till imports—last year’s total £74.110,400 sterling 18,520,874 £24,520.874 “A huge .contribution bv the community is thus being raised in favour of one of its sections. The general public is, therefore, by reason of the exchange, not only footing a big bill to avoid the necessity of writing down the capital value of hind and securities, but, in addition, it 'must not be lost: sight of that out of taxes further very large sums, amounting to many millions, have been distributed to producers in the form of bonuses, remission of Crown rents, lowered railway freights, and in many other ways. ONE BANK ONLY Air. Willis held the opinion that one bank only should carry on the nation’s banking. He favoured buying out all banks at .a valuation. He considered that the business of the country was being retarded by the need of more credit facilities in its financing, the banks having restricted their advances. 'The Government was a safe borrower, in whatever form; therefore why not increase its liability under the heading of bank notes, if credit could lie improved and the carrying on of banking business made more facile? In the course of his examination, Mr. Willis gave the opinion that the primary producer was getting more than a “fair deal” as against the secondary producer by about 40 per cent. The president. Air. Justice Napier, thought Air. Willis had some courage to make that assertion, wnon it was considered that tlie secondary producer had the advantage of the protection ad the exchange. At'' Willis also said Hie banks had b"'."> warned against t o rising value: of land, but he lesson of ’:)3 had beau a bit in Hie background