Page 2, 26th May 1939

26th May 1939
Page 2

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Locations: London


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Truth About the Czech Assets By Our City Edilur The optimistic tone in the markets continues. The notable upward movement in the gilt-edged market has made possible the issue of a £5,000,000 South African Government loan to be spent on defence railways, harbours, irrigation, and land settlement.

Plans, however, for an Australian Government issue, which were recently held up, may now be resumed.


Some little time ago an incident of such gargantuan absurdity took place in the world of (finance that it seemed unlikely that anything comparable to it could happen for some years.

I refer to Lord McGowan's answer at the meeting that it was not the custom of the company to disclose the extent of directors' fees.

Lord McGowan, it will be remembered, was reported to be drawing fees to the extent of " between 140,000 and 180,000 a year," and these reports were having " a very disturbing effect."

In a surprisingly short space of time a e have had a good " runner up " to this prize winning item. I refer to the matter of the Czech Assets which have now been transferred to the Reichsbank.

It has been officially admitted that • " informal discussions" have been taking place with German representatives about the release of the Czech assets blocked on London. In addition, it has been made pretty clear that the Czech gold held in London under the name of the Bank of International Settlements has already actually been transferred.

A question from Mr G. R. Strauss elicited the statement from the Financial Secretary of the Treasury that assets held to the order of the Bank of International Settlements would not fall within the Restrictions on Banking Accounts Act of 1939.

Captain Crookshank then stated that the Government had no power either under this Act or otherwise to obtain information as to the assets held by the Bank, or presumably as to what the Bank was doing with them.

Now this is a perfectly fantastic situation. Not only was the blocking of Czech, assets an essentially political measure but governmental and semigovernmental personages are on the Roane of the B.I.S.

Sir Otto Niemeyer is a director and so is Mr Montagu Norman.


In a word, we have a sort of government within the Government moving in an absolutely watertight compartment, and His Majesty's Ministers have not the faintest idea of what it is up to. All matters relating to the blocking of the Czech assets were matters on

which His Majesty's Government should have had the fullest possible information.

If His Majesty's Government have no means of getting information on matters of this sort, on what matters can they get it? But can Captain Crookshank's statement be taken seriously?

What is almost a contradiction of that statement comes from Sir John Simon as these lines go to press. It was that some time ago the Treasury had information " from Continental " sources that the Reichsbank was trying to get hold of the Czech gold deposited by the Bank of International Settlements with the Bank of England.

Sir John added that the Treasury decided it could do nothing. This kind of thing, added to the fact that the Prime Minister publicly designates as a mare's nest what turns out to be in essence, at any rate, not a mare's nest at all, is all very odd, and we are left wondering as to who it is that really governs this country. Is it Parliament or is it Mr Montagu Norman, Sir Otto Niemeyer and a few others meeting in amicable concord in some small office or possibly legislating discreetly over the luncheon table?


We have now been officially told that the bank rate is to be maintained at its present level of 2 per cent., at which it has stood for the past seven years, but an indication is pretty clearly given in the annual report of the Bank of International Settlements that a body of opinion in favour of using a flexible bank rate and giving it its classic function in the control of international monetary movement is steadily growing.

One of the prime considerations is the following: We are now moving into a boom, but despite this the supreme consideration must be cheap money to finance the Government's borrowing plans. We are thus moving pretty well for the first time into conditions with which the old checks were designed to deal, whereas those checks will now no longer be operative.

The most important result is this: That when the boom is over and we are faced with the inevitable slump, it will be impossible to apply, the curative method of a lowered bank rate for the simple reason that the bank rate will not have been raised, and a further lowering below 2 per cent, is hardly to be contemplated.

It is an interesting quandary and it will be worth watching to see whether an attempt will not shortly be made to rehabilitate, in theory at any rate, the old orthodox principles.

TREASURY BILL RATES It is improbable that there will be any substantial rise in Treasury Bill rates in the immediate future. During the March international tension and the monetary squeeze in April, rates were pushed up above 1 per cent. by the discount companies and handsome profits were made at the country's expense.

A list from the Treasury has now been conveyed to the market that the present rate at 11-16 per cent, is considered high enough. This is something of a novelty. The discount market has so far charged exactly what it thought the Treasury, could pay. There is likely to be an expanse shortly of Treasury Bill borrowing, and it has been pretty clearly indicated that if the discount market will not take up the bills at rates which the Treasury considers proper, the whole business will be done by the Bank of England. In that case there would be a complete end to the discount companies' business.

DEFENCE EXPENDITURE In an examination of defence expenditure estimated at £655,000,000 for 1939-40, or an increase of £255,000,000 over the previous year, the Westtninster Bank Review points out that a considerable part of the total represents larger amounts for wages, food and incidental expenses. Deducting these, there remains sonic £440,000,000, most, if not all, of which will be spent directly on purchases from industry.

The construction and building trades are the chief beneficiaries. Expenditure of the R.A.F. on works, buildings and lands is estimated at £48,250.000, compared with £30,496,000 last year. Similar expenditure for the Army is placed at 126,204,000 against 119,107.000, and for the Navy 112,782,000 against £7,617,000. It may be assumed that the bulk of the A.R.P. expenditure of 151,470,000 will fall on these industries, so that the total may be as much as 1138,000,000. Next in size is the expenditure on aircraft and balloons of 193,840,000—an increase of £41,805,000 over the 1838-39 actual figure, In the Navy estimates £82,820,000, compared with £65,452,000, is allowed for ship building, repairs and maintenance.

The four principal industries together account for £382,000,000 out of £440,000,000. The balance of under 150,000,000 is spread over a variety of goods.

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