The Daily News. WEDNESDAY, SEPTEMBER 8, 1915. EXCHANGE RATES.

Taranaki Daily News, 8 September 1915, Page 4

The Daily News. WEDNESDAY, SEPTEMBER 8, 1915. EXCHANGE RATES.

The fall in the rate of exchange with America is unprecedented and naturally is causing considerable discussion. The Auckland Herald, in an interesting article on the subject, points out that this fall has nothing whatever to do with British credit, nor with the intrinsic value of the pound sterling; it is caused solely by the balance of trade during the last nine months having been so heavily in favor of America. During the year 1913, the excess of exports over imports in the United States amounted to £1*1,000,000; in 1(114 the excess for the whole year, including five months of European war, only reached £94,000,000. The great change in this commercial balance commenced in December last. A most remarkable acceleration in the American export trade then set in; this has continued ever since. A monthly excess of American exports ranging from £25,000,000 to £35,000,000 has naturally disturbed the normal exchange with London, for practically the whole of the increase involved has been with Europe. Similarly, extraordinary conditions would have had an exactly similar effect upon exchange had New York keen the world's financial centre, foir exchange rates depend upon the balancing of credits and debits with, any given place. Our Auckland contemporary goes on to say that the balancing of credits and debits in international trade is necessarily complex. When a wheat merchant in Minneapolis sells a consignment in Liverpool he draws a bill of exchange on London; the London banker readily negotiates this bill, because a manufacturer in Bradford lias shipped woollen goods to Boston for which he has drawn a similar bill of exchange. By further financial transactions between Liverpool and Bradford, and between Boston and Minneapolis, the original transaction is customarily completed without a single sovereign crossing the Atlantic. These transactions are taking place a thousand times a day. ft is the immense connection and world-wide operations of London that have made it economical for Brazil to ship coffee to France and get paid through London, just as the Swiss manufacturer is paid through London when he ships his watches to ihe Argentine. So perfect and extensive, is the system that Hamburg habitually drew on London when shipping to New York, not because either German or American merchants wished to do this but because London is the world's clearing-

house, and could therefore. satisfy 'his exchange requirements more cheaply and more effectively than any other centre. Kates of exchange as between America and London have been so radically disturbed because the war has tremendously increased the value of goods shipped from America to Europe—principally munitions and foodstuffs to Britain and France—without any corresponding increase in the goods going the other way. The consequence is that banks which have to pay out against these shipments going eastwards cannot now finance them, as they usually did, from the proceeds of goods going westwards. Theoretically (continues the Herald) it becomes necessary to send gold across the Atlantic in order to restore the balance of exchange. In actual practice this is rarely done. The forty-two tons of gold reported as sent last week is a mere bagatelle, being worth little more than £4,000,000, a sum which would not restore the balance for a single week. Shipment oi gold is so full of risk and so expensive that the exchange rate always has to alter considerably before this is resorted to. As banks cannot now find sufficient shippers to America tp balance the Transatlantic trade, they must charge heavily for the accommodation of those who buy in America, if s'lirpinents from America are to continue. The actual result is that instead of the importer in England paying £1 for each 4 dollars 86 cents worth of goods, he lias recently been paying £1 for only 4 dollars 53 cents worth, a difference of nearly 7 oer cent. Even under the improved .rate now recorded the cost of imported goods in England is increased hy 4% per cent, as compared with the cost under normal . exchange rates. When the British merchants or London banks send shares to be sold in New York, exchange is steadied to precisely the same degree as though shipments of goods to the same value had been made. Such transference of securities has taken place to a very large extent. This was especially the case in July, when many British holders of American shares sold out in order to invest in the war loan. Since July, however, these sales have fallen off, and exchange is worse than ever. The remed3' now suggested is the raising of a loan in Mew York, which would similarly establish credits in that centre, and facilitate Atlantic trade by bringing the local exchange rates nearer to normal. Tli« opening of the Dardanelles might considerably relieve the position by enabling Britain an'd Prance to buy wheat from Russia, thus lowering the abnormal price of foodstuffs and correspondingly reducing the huge sums paid by British importers to American wheat-growers !