FINANCIAL NOTES.
In considering the further improvement Which has taken place in sterling as reflected in American currency during the last few weeks, it is rather important to note the nature of the influences which may have operated. If it were a: case of some great change in the :general trend of trade, the recovery would not only • be wholly welcome, but it might be regarded as stable and enduring. As a matter of fact, however, many of the influences which have operated must be regarded as of a transient charac- ter, while some of them are even of a nature to make it necessary that the rise in the exchange on London should be regarded with a certain amount of distrust.
* * * One reason for the advance may be said to be the enormous influx of American tourists to Europe this
year in connexion with the Wembley Exhibition. When there is borne in mind, first of all, the initial amount paid in passage money—in so far as the transit is in English ships—and second, the huge disbursements made while in this. country, it will readily be seen that the total runs, not into thousands, but almost into millions. Another reason for the rise in the exchange is to be found in the expectations of an early settlement of the Reparation crisis. This has occasioned hopes in the United States of a better state of things for Europe, and, consequently, there has been a good deal of American buying of Euro- pean currencies. Finally, a further impetus to purchases of sterling has been supplied by the fact that simul- taneously with a rise in Money rates in the London Market, the value of money in the States has been falling Even during the past week, there has been a further reduction to 3 per cent, in the Federal Reserve rediscount rate, and that fact has accentuated the tendency for America to buy English bills and even short-dated English securities.
These, however, it will be seen, are considerations which, while explaining the improvement in sterling, suggest that the causes operating are of a soniewhat special tempor-
ary character. If the wide margin between interest rates in America and this country should continue, it is quite possible that a great deal of American riney may come hefe, and that, as a consequence, sterling may rise further. It will, howeVer, be rather a case of what is known in the City as " bad " money. In other words, America will have a pull Upon' us in the .sense of being able at any time tO correct the exchange position by with- drawing balances-here. In fact, if American bankers saw anything in the situation_ indicating a probability of un- favourable economic - Conditions here later on, there would probably be a rush to withdraw balances before the exchange became too unfavourable. These are points ; which must; at ll events; be taken into consideration in noting theVresent improvement in sterling: •A. W. K.
Previous page
