EXCHANGE CONTROL

Wairarapa Daily Times, 18 January 1932, Page 6

EXCHANGE CONTROL

PRIME MINISTER REPLIES. TO CONTERBUEY PROTEST. WELLINGTON, Sunday. Tlie Prime Minister (tlie Right Hon. G. W. Forbes) has made the following reply to a recent protest by the Canterbury Chamber of Commerce against the powers taken by the Government providing under the Order-in-Council providing for the pooling of credits in London:—

“It is noted that the chamber agrees < that in the case of interest on Government loans our national credit requires that some arrangement shall be made to pay this interest.’ It is recognised that the action taken is an extraordinary one and far-reaching in its effects, but the Government was satisfied that some such step was absolutely necessary in the national inteiests. It "will be appreciated that the measure is a direct outcome of the financial crisis in London. Consequent upon the scarcity of funds due to the extensive withdrawals- of foreign balances from London, it is no longer possible to make use of tli e short-term loans market there to finance London requirements duiing the year. Secondly, in view of the general uncertainty of the whole position it is not prudent to count upon being able next-financial year to follow the practice of many years’ standing and float a long term loan in London at any reasonable rato of interest. Under these circumstances, all London commitments have to be provided for from New Zealand as and when they fall duo for payment. In other words, we arc compelled to rely entirely upon our own resources, and after eaicful consideration of all the circumstances it was considered advisable, after consultation with the banks, to mobilise the London credits of the Dominion in an exchange pool. This will ensure that the amount resuired for national commitments will be forthcoming when required and will enable the banks to regulate tlie exchange business with that degree of certainty which is essential under the abnormal conditions prevailing.

“Concerning your remarks on local bodies’ finance, there is no question of the Government fusing its powers to cover up their financial difficulties as is stated. From the point of view of the financial reputation of the Dominion, the credit of .the local authorities is second only to- that of the State. Loc-al bodies loans fall due for renewal in London from time to time, and it is necessary that their credit should be maintained on the London market to secure favourable terms. The borrowing -of local authorities is now supervised by the Local Government Loans Hoard instituted for ike purpose of -.checking loan expenditure, but it should not be overlooked that all such borrowing has been incurred o.u behalf of the people of tlie local district concerned by their elected representatives. The exchange pool, however, will in no way enable any local authority .to increase the burden on the ratepayers as is suggested.. The pool will merely enable the ■ banks to reserve sufficient exchange to bnable .local authorities to meet thenexisting London commitments for inierest, etc., as they fall due for payment.

“In regard to your reference to the £4,000,000 Treasury bills, I may explain that these bills were issued purely to avoid purchasing exchange for the time being and not for the purpose of avoiding reductions in expenditure, as stated in your letter. In fact, payments abroad, apart from, any purchase of material for public works which are financed mainly out of long-term loans, consist almost entirely of debt services which cannot be included in any scheme for cutting down expenditure, “ The Government’s exchange requirements for the year will amount to about £12,000,000 including the £4,000,000 Treasury bills referred to. It Is not proposed to issue any further Treasury bills in London v in the meantime, but I would point out that if it were feasible to issue any more such bills for finance purposes it would not ■add to the exchange difficulties, but rather tend to ease them.

“Finally, in regard to the amount of London exchange likely to be available for importers, it will be recognised that this will depend on the amount received from the sale of exports abroad, and the matter is largely bound up in the future course of the world's prices for primary products. Imports for 1931 lagged considerably behind exports, and it is not anticipated that for this year there will be any acute shortage of London exchange for legitimate trading needs. “Concerning reductions in expenditure, the proposals of the Government to set up Commissions to review the expenditure of local authorities and of the State have already been announced.”—(P. A.).