THE DEMAND FOR STERLING

Taranaki Daily News, 23 December 1930, Page 15

THE DEMAND FOR STERLING

SHORTAGE OF FUNDS IN LONDON. AUSTRALIA’S DIFFICULTIES. The shortage of Australian funds in London continues, and not* much can be expected in the way of replenishment until the wool-selling season advances and export of wheat is commenced, says, the Melbourne Age. The demand for sterling is great, and it is admitted by the trading banks in Melbourne that the “carded” or published selling rates are exceeded by a number of them. Recently the governor of the Commonwealth Bank, Mr. E. C. Riddle, forwarded a letter to various firms callino- attention to all who have dealings in° exchange to the Prime Minister’s appeal for co-operation with the banks in furtherance ,of the mobilisation scheme. Mr. Riddle said that nonsuccess of the’ scheme might bring about action on the part of the Government which would operate in the direction of a national control of exchange. Dealing with this and other matters in the course of a circular made available through its Melbourne branch, the Bank of New South Wales urges , that to meet the fall in wholesale prices in Great Britain, Australia’s principal export market, her costs also must fall. They may be reduced first and principally, says the bank by more effective work all round, and to the degree that this is not achieved they must be cut by reduced remuneration. Convertibility of the Australian pound at par with sterling is the ideal result of the gold standard; but unhappily, Australia is off the gold standard, on accoiint of reckless public borrowing. The/ gold reserve commandeered from the banks and exported has been paid for in Government ’ promises. These, it is stated, are dangerous expedients, and their value as palliatives is now almost exhausted. If Australian Governments continue expenditure on the scale to which they are accustomed the only source from which they can obtain money will be inflation, involving further increase of bank, credit -or of the note issue, or of both. Circulation of more Government promises, evading the task of balancing- the ledger, would paralyse the exporting industries, and quickly involve us in the repudiation of our national obligations. This would mean complete collapse of credit, both public and private. Australia must export £36,000,000 beyond the value of her imports. That is a debt of honour; to shirk it would bo to proclaim her a nation of cheats. Success i n meeting that debt would open the way to a’return of the gold standard. A radical revision of individual incomes all round must occur.

Referring to the agreement between the Loan Council and the banks by which £30,000,000 per annum may be obtained in London for payment of interest, the bank says that the growth of the open or outside exchange market is a sure sign that the banks’ rate has been a faulty one. Selling only limited drafts proves that at the price asked the demand exceeds the supply. If it is to the mutual interest of exporters to sell and of importers to buy .London money' at prices in Australian money other than the banks’ rates, they will conje together and trade. The “pegging” of the rate of exchange deprives export industries of the full reward of their efforts to earn sterling. A foolish way of stopping the growth of an outside market would be to prohibit exports except through, licensed channels; Payment for sterling, would -be made at- the rate deemed right and just, by- the Government. . Australian Governments would be financial despots exposed to all the temptations of irresponsible power. The Governments want money year after year in London, and they must therefore consult the permanent interests of those who can be relied upon to earn it. The rate that sensitively reconciles the supply to the demand sets at work forces which tend to bring the rate itself towards parity. An adverse rate by giving a premium to the exporter who earns money abroad encourages sales there. Such a rate, sensitive, to the degree of our deficiency in exports, would at present be a valuable indicator of Australia’s progress in paying her way. It is hard to say under a rigid system, accompanied by rationing, what is the true relation between sterling and Australian money. The fact of the premium on sterling, and the fall it expresses for exports, can liardly be hidden. If the banks are to retain the function of remitting money on public and private account it is, says the circular, essential that their rate should be a true one.

The bank admits in conclusion, that a sensitive exchange rate is no panacea for Australia’s ills, and says, that Sir Otto Niemeyer rightly distrusts any suggestion of action to evade the paramount necessity of balancing all Australia’s Budgets. A sensitive exchange rate will - indicate the extent of Australia’s need of exports and her progress in supplying them. Its main value, when quoted above board amongst the banks and traders handling exports, adds the bank, is a record of our return to sanity.