THE Wairarapa Age MORNING DAILY. FRIDAY, MAY 4, 1934. FUNDS IN LONDON.

Wairarapa Age, 4 May 1934, Page 4

THE Wairarapa Age MORNING DAILY. FRIDAY, MAY 4, 1934. FUNDS IN LONDON.

Not very long ago, it was being urged by representatives of importing interests in this country that the rate of exchange on London ought to be dropped because surplus New Zealand credits were piling up to a dangerous extent in the monetary centre of the Empire and were likely to go on doing so. The Government was strongly criticised, too, for not including in its Budget a large amount of expenditure representing the loss presumably to be incurred in converting these London credits into New Zealand currency. An entirely different complexion is put upon the position and outlook by a statement made at Papakura by the Minister of Finance (Mr. Coates) and some subsequent observations by Professor A. H. Tocker, of Canterbury College. Between them, the Finance Minister and Professor Tocker show very good reasons for supposing that the Dominion may be involved ultimately in no very serious loss over the conversion of surplus credits in London and also that the conditions of oversea exchange management are likely to be improved very considerably when the Reserve Bank has been brought into working operation.

Definite facts to be noted are that as soon, as the Reserve Bank is established, it will buy the surplus London credits the Government now has in hand. This will enable the Government to pay off the Treasury bills it has issued in this country to finance the purchase of London funds—with a resultant saving. of interest at five per eent. on the amount raised in this way. It seems very probable that the extension of available credit thus brought about may lead to a lowering of interest rates and may impart a valuable impetus to trade revival. On the other hand, it does not seem at all likely that a substantial holding of London credits will be an embarrassment to the Reserve Bank. Save in the extent to' which they are needed for conversion into New Zealand currency, these funds can be made fully productive in investment and should constitute a perfectly satisfactory reserve. The position as it stands of course is affected hy features that are abnormal and temporary. The reduction of im-

ports has been carried to an extreme on. account of fears that the rate of exchange may fall, and more or less substantial sums owned in Britain and elsewhere are being held in New Zealand in the hope that tho rate may fall. For reasons that have often, been; stated, however, notably the inr evitably adverse effect on both primary industries and the general trade and industry of the Dominion of exchange deflation and the practical impossibility of leaving to competitors inside and outside the Empire the advantages of exchange inflation, it seems most 1 unlikely that any move towards reestablishing parity with sterling will be made by this country for a considerable time to come. The odds seem to be that the improvement foreshadbwed by the Minister of Finance ’and' Professor Tocker will take place and that the Dominion will find* it ; much more advantageous to pursue the i course to which it is meantime commiti ted* than to adopt any alternative policy of a deflationary kind.