PROBLEMS OF EXCHANGE.

Star (Christchurch), Issue 16455, 17 June 1921, Page 2

PROBLEMS OF EXCHANGE.

IMPORT AND EXPORT FACTORS. A BANKER'S REVIEW, (Special to ‘'Star.’') WELLINGTON, June 17. Referring to-day to the difficulty in effecting remittances from Australasia, to Great Britain and other parts of the world, Mr H. Beauchamp, in his annual address to the shareholders of the Bank of New Zealand> stated that in the past, six months the difficulty had not materially decreased. While traders generally had made great efforts to reduce the amount of the imports which had to be, paid for in the shape of London or other exchange, goods had continued to arrive in very large quantities and representing very high values, so that, for the first, three months of this year (namely, .TanuaryFebr u a ry-March, 1921) the total imports amounted to £15,658,502. Imports were now foiling off, and doubtless before long the demand for London Exchange would have come back to reasonable figures. “ When our last meeting was held,” Mr Beauchamp said, “telegraphic exchan go on London was being sold by the banks at the unusually high premium of £2 10s per cent, a figure which it had not reached for something like thirty years. Some weeks later, the increasing demand for such remittances necessitated the rate being increased to £3 per cent premium, at which it still stands. Tt is a pleasure to be able to report that, after another still able to supply all our customers with the full amount of their requirements in the shape of exchange, cither ® ! telegraphic, or by draft. To meet the 1 requirements of this Dominion. the ■ bank has drawn no less than sixteen ) millions from London during the past i twelve months. If is fortunate for ■"k 1 all concerned that it had such large ; sumo available in the world’s centre The funds which we hold in London, i although much reduced, aro still of ] substantial amount, and wo have every I reason to expect that we shall bo able , to continue to meet our customers’ r«~ j quirements in the matter of exchange j the question of external exchange i ceases to attract the attention and to cause the interest which have attached i to it during the past eight or nine j months. I “Business people in New Zealand 1 generally seem to regard the payment ! of such a premium as £3 for tel ft- | graphic, exchange as something re- | markable. It is unusual in the experj ience of this Dominion and also of Ans- | tralia, with which wo aro so colsely associated, but this is because, ns was pointed out six months ago. it has always been the practice of Banks do- — ing business here to hold large available funds both in London and in the ■ Dominions, so that they were always able to meet the requirements of the business community, whether in the way of buying or selling ‘exchange. (Such fluctuations as have taken place in our exchange with Britain during the past few months are, however, uothing extraordinary, as compared with ■ the fluctuations during the past year iu ■* the rates of exchange between Britain and other countries; indeed, they are trivial. The premium on Telegraphic Exchange rose during the year from 1 to 3 per cent—a. fluctuation of 2 per L cent. During the some year 1920 1 the exchange between London and Paris was as low as 40.95 francs per .£. fct and ns high as 68.50 a difference of 67 per cent. The exchange between London and Amsterdam varied to the j extent, of 32 per cent; that with Buenos Ayres, 41 per eont; Rio. 9] per cent : Yokohama, 26 per cent; Rome, 111 ]h'i-. rent; and New York. 25 per cent. With these illustrations of fluctuations before them, it seems to me that, business people in Now Zealand should rather feel thankful for the stability to which, they are accustomed, and which still continues, than feel concerned over the comparatively small premium which has now to bo paid for exchange on Loudon. “ While on the subject, it is perhaps appropriate that I should refer to an aspect of our commercial dealing with the. outside world, and especially with Britain, with which by far the larger portion ofj our trade is done, which j perhaps has not occurred to some of you. Where two countries have trade relations with one another, each exporting to and importing from the other, it might be expected that each of these countries should find the money for financing one side of the trade Which is in transit, but wo in New Zealand, to a very large extent, find ihe funds lor financing both our exports and our imports. During the. past few rears this has not been entirely the "case The greater part of our exports have! as you are aware, been bought by the Imperial Government, and have been paid for almost as soon as they were in the hands ol : the Imperial Supplies Department, regardless of the time which might elapse before thov -i\ere shipped and before they arrived ’in Britain. But this was a departure from the ordinary practice, which is now being reverted to. Our wool our ; meat and our other staple products j i 'i’© not usually paid for until thev have arrived at their destination, or until they have been some time there, lor most ot our products the exporter here draws upon the importer abroad, probably at six days’ sight. The bills have not to be paid until the produce has been received by the purchaser has probably been distributed, and possibly consumed. Tt is quite true that W much of our produce is. bought hc-e by representatives of the importing firms abroad, and tiltat they have eve- I clits established by their bankers un* j dor which their drafts are drawn, but | even though these credits exist, it is the funds of our Dominion hanks j which are expended, and thev afro not recouped until the bijls mature. ! “As to our imports, the converse j position holds. AYith regard to by i far the larger part of the goods which we import, the funds to pav for them are supplied from New Zealand resources when the goods leave Britain. In some cases our importing firms have their own representatives in London whom they supply, by telegraphic transfer or otherwijsa, with money to pay for their imports. In other cases, credits are established with the Lon-1 don offices of the banks which do business in the Dominion, and these banks purchase from the* shippers, or from their bankers, the drafts which thev draw upon the importers here. In still other cases the exporters in Britain or their bankers come to our London offices with such drafts, and thev are purchased without the support of a credit from this end. *" It is perfectly true that in many cases the. importer of the goods will not have to pay for them until 60 or I 90 or 120 days after the goods havo il reached Now Zealand but it is not the f| English exporter or' the English bank--11 er who is meanwhile standing out of [I the money. Whichever of the methods H which I h.avc described is adopted for ] making the remittances to London, the I exporter there receives his money witli j promptness and it is New Zealand funds, already in the hands of the New Zealand Banks, which are employed during the period which elapses between the negotiation of the Bill j*nd its ultimate payment. There are, of course, some cases in which the draft drawn upon the importer in New Zealand is sent hither for collection and remittance of proceeds, but this process is not the usual one. Speaking generally, we ourselves as a community find the money to pay for our imports • ;is soon as they are shipped, whilo we wait for the proceeds" of our exports until they havo,reached their destiua-

tion, or perhaps gone into consumption <4 It is hardly surprising that, under the present conditions, when imports have been arriving in unprecedented volume, and our products are nearly all fetching low prices, some difficulty 'should be experienced in continuing to rrako payment for the imports in the same prompt manner as formerly. It is prcbable that some importers are, at the present time, obtaining a measure of credit from the manufacturers or merchants who supply them, but the course of dealing which I have described is that under which by far the greater part of our trade is carried on.