FINANCIAL MATTERS.

Waikato Times, Volume 106, Issue 17836, 8 October 1929, Page 8

FINANCIAL MATTERS.

POSITION IN ENGLAND.

BANKERS HAVE ANXIOUS TIME. SIR H. BEAUCHAMP’S VIEWS. AUCKLAND, Tuesday. “ The English banking authorities this year have passed through an anxious period which has not yet ended,” said Sir Harold Beauchamp, who returned by the Remucra yesterday. “This was due to the heavy outflow of gold, and, after Hie raising of Ihc hank rate early in February from 41 to 51 per cent., the necessity arose still more recently for a further increase to Oi per cent. From September. 1928, to February, 1929, £26,000,000 in gold were withdrawn from the Bank of England. The continuation of the efflux forced tlie second increase, in the official rate of discount."

The loss of gold to tile United States and other countries was really due to monetary stringency originating in the United States, in that country tremendous speculation in securities accompanied the industrial “ boom." This was tlie direct result of good trade, and it coitld he expected to continue as long as American companies continued to earn increasing profits and to pay good dividends.

An Important Result. One of the most important results of Hie monetary stringency and tlie “ boom ” in common slocks, or equities. was Hie virtual closing of Ibe market for foreign loans in the United States. This had an adverse effect on European exchanges. Europe had to remit to ttie United Stales about £50.000,000 a year in respect of war indebtedness and until recently it had been aide to make these payments and also meet tlie cost of imports from America by borrowing money there. This kept Hie exchanges stable. Last year, tlie United Stales increased its exports, hut materially reduced its foreign loans. Europe had to remit an extra billion dollars to America and this year foreign issues in the United States had fallen to almost negligible proportions. For the smooth working of tlie gold standard, the principal financial centres had to regulate their bank rates lhainly by reference to tlie slate of the exchanges and not inertly to domestic considerations. If tlie exchanges were favourable and a gold inllow was likely io occur, the hank rate would he reduced, while if I lie exchanges were adverse and an outflow of gold was threatened, it would he raised. America had disregarded this rule and in consequence had made Ihc working of the gold standard most difficult for other countries.

Stock of Gold Depleted. A prolonged outflow Of gold to France at tno beginning of the year severely depleted the stock in Hie Bank of England. At the highest point ni 1928 this had amounted to £176,000,000 but it had now fallen to little more than £130,000,0(10. Germany had also taken gold from London at this period. “ The outflow of gold to France is said to he due to the growing demand for credit there,” Sir Harold said. "As a result, her foreign balances have been drawn upon heavily. Gold flowed out to France so freely that a rise m the hank rate was freely predicted in July. The movement was checked early in August, hut not for long. France had such large balances in sterling that she had the power to take much more gold from England. The bank rate had to he raised. “ America and France are engaged in hoarding gold. Relatively lo her population, France has the bigger stock with a tola! of about £500,(100,000, as against about £900,000,000 in the United States. America is hoarding it by virtue of high money rates, while France is hoarding it because she has not the necessary machinery of an international financial centre. Thus the burden of international finance is falling on London which has a gold stock of only about’£l3o,ooo,ooo. “ With these other countries dragging gold from her it is easy to understand" that the job is diflicult. The gold standard is being called on to bear strains it was never intended to carry. It is hoped that a remedy for the situation will come from a change of altitude by both America and France, so that they will either take their lair share in" international finance, or refrain from drawing from London gold which they do not want and hindering her in the discharge of a diflicult task.”