FOREIGN EXCHANGE.

Waikato Times, Volume 109, Issue 18350, 9 June 1931, Page 8

FOREIGN EXCHANGE.

WHY THE RATE VARIES. EFFECT IN NEW ZEALAND. BANKER ADDRESSES ROTARIANS. Some features! of foreign exchange were dealt with by Mr P. L. Porter, of the Bank of New Zealand staff. Wellington, in a short address at the Hamilton Rotary Club luncheon yesterday. Foreign exchange simply meant the buying and selling of the money of other countries, stated Mr Porter. Referring to the gold standard, the speaker remarked that if this system were working effectively and there was a convertible currency the foreign exchange balances could be settled by sending gold. There was an inconvertible currency in New Zealand at present, and gold could not be demanded. The exchange rate had risen because countries which had contracted to settle in gold could not do so. It was still possible to get gold in England, and the foreign balance could be settled when necessary. While the exchange rate was roughly about par to England, it was 10 per cent, to New Zealand and about 30 per cent, to Australia. The Trade Balanoo. It was necessary for any dealer in foreign exchange to hold a stock of foreign money. Most New Zealand banks had large balances in London which represented their stock of goods in which they were dealing. When the value of produce was high it yielded a good deal of money in England, which ultimately reached the banks. This money was held in London until bills could be bought on New Zealand. Most of the goods imported into New Zealand were settled for in London. In times of prosperity, when prices _ for our primary produce were high, merchants ordered larger supplies of goods from the Old Country. Generally the exports just about balanced the imports after providing for interest on Government loans. Merchants, however, had to orlierf in advance, and the decrease in the volume of imports did not take effect until some time after the prices of our exports fell on the London market. As a result the banks were short of money in London, and obviously the price of that money had to increase. Similarly if the banks were short of money in London anything which tended to decrease those funds went against New Zealand, in that imports from England cost more. The banks-experi-enced difficulty in balancing their accounts. They had to take whatever the market gave, whether it was in favour of buyers or sellers. The law of supply and demand operated very fairly in exchange. Fluctuations Explained. Commenting on the fluctuations of exchange in recent years, Mr Porter said the difficulty was- that there was no possibility of settling foreign debts by shipping gold. For many years there had been enough gold to go round and the exchange fluctuations were very small, rarely above 2 per cent., the cost of shipping the gold. The influence of exchange on the daily life of the people was fairly considerable. At present the primary producer in New Zealand was getting a very great advantage from the exchange rate. He was getting about 12 per cent, more than the rates obtaining a few years ago. This was a great offset to the low price lie was receiving at present for his produce. The actual level of the exchange rate did not affect the banks much, so far as profit was concerned, as they relied on a small margin of profit from turnover. Mr Porter said many people were puzzled by the great difference between the Australian and the New Zealand exchange rate. Australia was much shorter of London money than New Zealand, and therefore had to pay more for it. Between Australia and London the rate was roughly 30 per cent.; between New Zealand and London it was 10 per cent.; and between New Zealand and Australia the rate was 20 per cent. He pointed out that the rate between New Zealand and Australia had to be on a reciprocal basis with the rates between Australia and London and between New Zealand and London. Mr Porter was heartily thanked for his instructive address.