EXCHANGE RATES.

Timaru Herald, Volume CXXV, Issue 18599, 21 June 1930, Page 8

EXCHANGE RATES.

HUGE INCREASE EXPLAINED. (Special to the "Herald.”) WELLINGTON, June 20. At the annual meeting of shareholders of the Bank of New Zealand, Sir George Elliot, chairman of directors dealt at sot-e length with the question of exchange. He said that in considering this question it would be necessary to draw attention to conditions existing in Australia as well as in the Dominion.

“For several months past Australia has been experiencing a period of severe financial exchange difficulty. Her accumulated funds in London have been seriously depleted, and importers are finding it no easy task to arrange for payment of imports. The cost of London credits, following the inexorable law of supply and demand, has increased to an extent unknown a few years ago, involving a heavy burden on importers and their customers. “A year ago the cost of telegraphic transfer, Australia to London, was 1 per cent; it lias increased by stages until officially it stands at 61 per centr, although as much as 81 per cent, has in some instances been paid to private sellers.

“This state of affairs has been brought about mainly by % the slump in export values of prima-y products, but a collapse in values is by no means the only cause. The inability of the Commonwealth Government to . borrow abroad (except at excessively high rates) the fresh funds necessary for development purposes and to provide for rapidly increasing interest charges, has immensely aggravated the exchange position. “As a means to the curtailment of imports, the Australian Government has largely increased Customs duties, but until this practically prohibitive increase has taken effect and prices of produce materially improve, the Australian London Exchange position is unlikely to ease. “It is claimed by certain Australian bankers that there was no need for such drastic action on the part of the Government, since the Banks were controlling the position by regulating exchange rates so that equilibrium would in time have been thereby attained.

“There is much in favour of this contention, for exchange rates would necessarily have been raised until a baalnce was arrived at, and exporters of primary products would have materially benefitted. For instance, at the present moment, with the telegraphic exchange rate at 6 1-8 per cent, in favour of the Australian exporter, for every £IOO worth of Australian products shipped to London the exporter receives £lO6 2/6, and this extra £6 2/6 per cent, to that extent compensates him for the serious drop in values that has recently taken place.

“New Zealand, for a period of seven years ended March 31, 1929, had an excess of exports over imports of £36.526,581, an excess which has materially assisted to preserve her financial equilibrium. In the same period, however, her interest on external loans amounted to over £45,000,000.

“During last year Interest charges payable in London have been increased considerably by interest on new loans and by increased interest on renewed maturing loans. “The New Zealand exchange with London is at present at 5 per cent, premium for selling telegraphic transfers, —a situation brought about to some extent by our relationship with Australia, but chiefly by diminution in the value of our exports.

In 1921, New Zealand telegraphic exchange on London stood at a selling premium of 3 per cent., a figure that had not been equalled for many years. This was owing to abnormal conditions then ruling. In that year imports exceeded exports by £19,263,910. Although for the year ended March last imports were near a parity with exports, as disclosed by the figures of the Customs Department, it is certain that the amount actually realised for our exports has been very much less than the value declared at time of shipment. It must also be remembered that interest amounting to something like £8,200,000 on Government and Local Body Loans raised in London, has annually to be paid there. Under such conditions, the exchange position will be difficult for some time to come.

“A number of in porters who must take advantage of seasonal offerings, calculating their requirements on last year’s business, have apparently overpurchased, and the goods may have to remain on their shelves for some time to come.

“A number of importers who must take advantage of seasonal offerings, calculating their requirements on last year’s business, have apparently over-purchased, and the goods may have to remain on their shelves for some time, or be disposed of at a loss.

“You no doubt noticed that in recent Government statements, the public revenue from Customs duties for tne financial year ending March 31 was considerably greater than was anticipated; it appears, therefore, that with large stocks on hand, importations during the coming year—and as a consequence, Government revenue—must be considerably lessened, unless unforeseen circumstances arise.

“We have been able to supply all our own customers’ exchange requirements, and anticipate being able to continue doing so, though our resources in Londue largely to exceptional transactions on have been considerably depleted, on account of our Government.

“Notwithstanding the fact that the present London exchange rate is extremely high, the position in New Zealand is relatively stable when compared with that of certain other countries, where exchange fluctuates from day to day, rising and falling to an extent unusual in purely British communities.”