The Daily News TUESDAY, OCTOBER 1, 1929. THE BANK RATE.

Taranaki Daily News, 1 October 1929, Page 8

The Daily News TUESDAY, OCTOBER 1, 1929. THE BANK RATE.

To those who follow the fluctuations of the London money market the rise of one per cent in the Bank rate should come as no surprise in face of the continued outflow of gold for some time past from the Bank of England. When the rate was raised to five and a half per cent, on February 7 last it ,was thought to be only a temporary precaution to stop the export of gold from England, but the speculative orgy in the United States and the action of the Bank of France combined to a persistent withdrawal of gold from the Old Country, and the wonder is that a rise in the Bank rate was not made some weeks ago. It is significant that the whole city of London has welcomed the rise, probably for the reason that it puts an end to the lowering of the exchange of the dollar standard, as well as stabilising

the stock markets. The increased rate- appears to have promtly had the desired effect. Dear money may act adversely On business enterprise to some extent, but it is of far greater consequence to maintain the value of the pound sterling as expressed in American dollars. The London Times take quite the right view of the position in asserting that the rise was inevitable, the main object of the bank directors in raising the rate being to stop the export of capital, a course which threatened to deprive British trades and industries of credit supplies which are urgently needed at the present time. There is no necessity to discuss whether some othei* form of credit policy would be an improvement on the gold standard. Present • conditions have to be met and adjusted, therefore the action of the Bank of England, the supreme guardian and controller of British gold, is not open to adverse criticism. On August 9 5 it may be recalled, at the close of the gold movement in London, the Bank of France possessed some 38,472,000,000 francs in gold. If the movement is taken as having begun about the same date in July, the total increase in that bank’s reserves amounted to 2,800,000,000 francs, or, roughly £14,000,000. In the same period re-discounts increased by about a thousand, million francs, indicating that the liquidation of sterling holdings, which led to gold imports, did not produce sufficient francs, so that the total of sight liabilities increased by 2,300,000,000 francs- But for the imports of gold the ratio would have declined; thanks to the latter it increased from 44.8 per cent, to 45.42 per cent. The bank’s accumulation of gold since stabilisation—about fourteen months ago—amounted to 9,500,000,000 francs, or £75,000,000, the total having risen from some £230,000,000 to more than £305,000,000. Of this increase about twenty millions was derived by the sale of old French coinage, and the balance, less the fourteen millions .recently received from London, must have almost entirely originated in New York. The August total of the French gold reserve w.as equivalent to more than half that of the Federal Reserve banks, and more than twice that of the Bank of England. But, of course, besides gold the bank has gold exchange to the value of over £200,000,000. Gold and gold exchange foot up only five hundred million francs less than the total of the note circulation, and give-- a cover of over seventy-five per cent, for circulation and deposits together. These figures illustrate how the Bank of France, has been strengthening its position by the import of gold from London and America'. Recently the Bank of England’s stock of gold was reduced by nearly three and a half bringing down the bank’s stock of gold to one hundred and thirty millions. About the middle of last month the unexpected advance in the New York re-discount rate unsettled the London money market, when fear of an increase in the bank rate was only allayed by the Governor’s statement that such an increase did not necessarily follow that in New York- Tho what extent the rise in the bank rate will affect New Zealand is to be seen later, but it is possible, as the rate here invariably, follows any I move of this kind made in London, that dearer money will be the rule. It may also affect the rate of exchange between London and the Dominions, the only consolation being that it may not be long before a fall in the rate takes place. No movement such as raising the bank rate can take place 1 without adversely affecting at least some of the community, but the necessity for the bank’s action must be admitted as unavoidable. That it is already accomplishing its purpose is gratifying.