FLUCTUATING EXCHANGE

Taranaki Daily News, 20 June 1931, Page 15 (Supplement)

FLUCTUATING EXCHANGE

■REASON FOR THE HIGH RATES. EFFECT ON BANICING BUSINESS. Interesting comment on the l exchange rates was made by Mr. W. Watson, chairman of the Bank of New Zealand, in his address to the shareholders at Wellington yesterday. "The present rates of exchange between London and New Zealand and vice-versa are,” said Mr. Watson, “abnormally high, and there is no reduction in close sight. The principal factor in advancing rates from time to time has been the necessity for bringing about a reduction in imports to correspond in some measure with the reduced value of exports. To a considerable extent this result has been attained, but London reserves, which have been heavily depicted, must be. built up before reduction of rates can be looked for. Further, it is by no means certain that for the present year the balance of trade will be in the Dominion’s favour to anything like an adequate amount. Were it not that the banks held funds on a large scale in London, the rise in exchange would have taken place sooner than it did and been heavier. \

; “We have resolutely refused to permit our New Zealand funds in London t o be availed of for the benefit of Australia, but, unfortunately the banks do not control. the exchange position, consequently through channels outside the banks Australians have secured possession of an appreciable amount of New Zealand funds in London.

“A large section of the public does not appear to recognise that whilst the margin between buying and selling rates remains unaltered, the banks derive no advantage cither from a high buying or a high selling rate. As a matter of fact, it is almost certain that during the period of adjustment to normality, the banks must lose money on their exchange transactions.

“The position of Australian exchange is also abnormal, and until conditions in the Commonwealth substantially improve, there is little or no hope of alteration. Complaints have been made by New Zealand exporters to Australia that the exchange rate is seriously restricting trade. That no doubt is the case. On the other hand, our bank has funds in Australia far in excess of its requirements —an excess which in present conditions it is impossible to shift. In fact, it would suit us to stop buying any exchange on Australia for a long time to come. “It is well to emphasize that it is the producing, and also the manufacturing, industries of the Dominion, and not the banks, that are reaping the advantage of the present abnormal exchange rates on London.”