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• 1096 FEDERAL RESERVE OF NEW YORK. BANK December 1, 1920. OFFICE CORRESPONDENCE To Mr. Jay From E. R: Kenzel X_20?6 SUBJECT: A u s t r a l i a and New Zealand a s c o u n t r i e s whose customs of t r a d e r e q u i r e f a c i l i t y f o r c r e a t i n g d o l l a r exchange, * R e f e r r i n g t o Governor . H a r d i n g ' s l e t t e r of November 30 and t h e l e t t e r of t h e National Bank of Commerce; New York, dated November 69, a t t a c h e d t h e r e t o , i n connection with t h i s S u b j e c t : I have given c a r e f u l c o n s i d 6 M t i o n over a l o n g p e r i o d a s t o t h e d e s i r a b i l i t y of p e r m i t t i n g Austtfaiiasiin banks t o draw d o l l a r b i l l s on American banks and bankers f o r t h e purpose of c r e a t i n g d o l l a r exchange. I am convinced t h a t i t would be d e s i r a b l e and t h a t t h e customs of t r a d e and t h e f i n a n c i a l and t r a d e c o n d i t i o n s t h e r e a t the p r e s e n t . t i m e f u l l y j u s t i f y i t , f o r t h e f o l l o w i n g r e a s o n s , among o t h e r s : A u s t r a l i a and New Zealand a r e almost e x c l u s i v e l y a g r i c u l t u r a l c o u n t r i e s , which depend on t h e i r e x p o r t s of a g r i c u l t u r a l p r o d u c t s a s means of payment f o r t h e i r necessary i m p o r t s . As i n a l l a g r i c u l t u r a l c o u n t r i e s t h e export movement i s seasonal and when outward exchange i s not making, they must have f i n a n c i n g over t h e season u n t i l e x p o r t s w i l l resume. This they have h e r e t o f o r e had e x c l u s i v e l y through London and t h e B r i t i s h i n t e r e s t s which c o n t r o l a l l of the A u s t r a l i a n banks have c r e a t e d a monoply f o r s t e r l i n g i n the overseas b u s i n e s s w i t h A u s t r a l a s i a * P r a c t i c a l l y a l l of t h e b u s i n e s s done by the A u s t r a l a s i a n banks, they being B r i t i s h owned, i s done f o r account of London. P e n e t r a t i o n of American banking i n t o A u s t r a l a s i a has h e r e t o f o r e been i m p r a c t i c a b l e because of t h e c l o s e monoply maintained by t h e i n t e r e s t e d banks. This hftfl r e s u l t e d i n a handicap a g a i n s t American commercial r e l a t i o n s w i t h A u s t r a l a s i a and h a s p r a c t i c a l l y , a l t h o u g h not s p e c i f i c a l l y r e q u i r e d , both 1097 - 2 - x-2076 w i t h reg&rd t o imports and exports between t h i s country and A u s t r a l a s i a , t h a t t h e b u s i n e s s should be done i n s t e r l i n g and t r a n s a c t e d through B r i t i s h banks, which h a s imposed r a t h e r a burden upon our t r a d e w i t h t h e s e c o u n t r i e s . At t h e p r e s e n t time, however, t h e r e i s a n opportunity f o r t h e p e n e t r a t i o n of d o l l a r c r e d i t s i n t o A u s t r a l a s i a n markets, and t h e e s t a b l i s h ment of d o l l a r exchange i n those markets, a t l e a s t one way. This condition a r i s e s from t h e f a c t t h a t t h e stringency of c r e d i t i n London p r e v e n t s the establishment of c r e d i t s t h e r e a g a i n s t which A u s t r a l a s i a n banks might draw i n a n t i c i p a t i o n of t h e i r wheat and wool b i l l s which w i l l begin t o be making i n January and February# t l i i s View has been r e c e n t l y confirmed t o me by bankers h e r e , i n c l u d i n g ftii'eigii bahkefs who a r e clbsely i n touch with t h e s i t u a t i o n and have r e c e n t l y conferred aldd with Atistraliah bankers who a r e v i s i t i n g h e r e . I b e l i e v e t h a t A u s t r a l a s i a n banks would w e l * # # the opportunity t o draw d o l l a r s on t h i s country and t h a t t h e i r a b i l i t y t o do so would be t h e e n t e r i n g wedge t o the development of t h e t r a d e custom of s e l l i n g our e x p o r t s t o A u s t r a l a s i a i n d o l l a r s , which would r a l i e v e our e x p o r t e r s of a l l hazard of exchange i n t h e i r t r a f f i c . There i s no doubt t h a t I have heard expressed anywhere a s t o t h e a b s o l u t e i n t e g r i t y of t h e A u s t r a l i a n banks and t h e i r a b i l i t y t o meet any o b l i g a t i o n s which they would assume and which would be granted t o them i n t h i s country, and t h e i r t r a d e p o s i t i o n i s , I b e l i e v e , a b s o l u t e l y sound. * A f u r t h e r g r e a t advantage t o our American commerce of t h e g r a n t i n g of t h i s f a c i l i t y , and p a r t i c u l a r l y a t t h i s time, would be the r e l i e f to our e x p o r t e r s who have l a r g e amounts due them f o r goods already shipped, upon which c o l l e c t i o n s can not be mads. Also, t h e export t r a d e - 3 - X-20?6 t o these c o u n t r i e s , solely on t h i s account, has come p r a c t i c a l l y to a standstill. There i s an e x c e l l e n t demand f o r American manufactures from customers t h e r e who a r e well able t o pay f o r t h e goods, but l a c k i n g exchange f a c i l i t i e s , a r e unable to do s o . I have heard no objection r a i s e d i n any q u a r t e r , even among t h e f o r e i g n bankers represented here, against the g r a n t i n g of t h i s f a c i l i t y i n respect of A u s t r a l a s i a , and I can conceive of no reason why i t should not be done.
@FedFRASER