NO REDUCTION IN SIGHT YET.

Star (Christchurch), Volume XLIV, Issue 144, 19 June 1931, Page 5

NO REDUCTION IN SIGHT YET.

BANKER’S VIEW OF HIGH RATES OF EXCHANGE. (Special to the “ Star.”) WELLINGTON, June 19. The statement that no reduction in the present abnormally high rates of exchange between London and New Zealand and vice versa was in close sight, was made by the chairman of the Bank of New Zealand (Mr William Watson) in his address at the annual meeting of shareholders to-day. “ 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," Mr Watson said. “To a considerable extent this result has been attained, but London reserves, which have been heavily depleted, 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. No Help for Australia. “ We have resolutely refused to permit our New Zealand funds in London to 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 either 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. Banks Not Benefiting. Ihe 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 emphasise 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."