Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
0Activity
0 of .
Results for:
No results containing your search query
P. 1
28008_1930-1934

28008_1930-1934

Ratings: (0)|Views: 0|Likes:
Published by fedfraser

More info:

Published by: fedfraser on May 04, 2014
Copyright:Traditional Copyright: All rights reserved

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

05/04/2014

pdf

text

original

 
 6
FEDERAL RESERVE BULLETIN
JULY, 1930
quently the reserve ratio during the last fourmonths of the year, notwithstanding the reduc-tion in the gold and foreign exchange reserve,was higher than in the corresponding period of
1929.
 The yearly average of the reserve ratioin 1929 was 42.90 per cent as against 45.95 percent in 1928. During the year the amountof the State debt due to the bank was reducedby 9,700,000 pengos ($1,697,000). The effectwhich this reduction might have exercised inlowering the reserve ratio was slight comparedwith the contrary effect produced by the farlarger reduction in demand deposits and notecirculation.
 NNU L REPORT OF THE B NK OF L TVI
The Bank of Latvia has issued its annualreport covering the year 1929. Sections of thereport are given herewith:
 
The merchandise balance.—In consequenceof
 the
 subnormal harvest, it became necessaryto import large quantities of grain from abroad,not only for food, but also for sowing. Thus,imports were stimulated to a high degree and,in the first half of 1929, goods were imported tothe value of 176,000,000 lats ($33,968,000), asagainst 130,000,000 lats ($25,090,000) in thecorresponding period of the preceding year.The situation was aggravated by the fact thatexports, instead of showing a developmentparallel to that of imports, decreased consider-ably—from 120,000,000 lats ($23,160,000) to100,000,000 lats ($19,300,000). This was due,first, to the suspension of export traffic throughthe obstruction of navigation caused by theabnormally cold winter, while the more ex-pensive import of goods by rail was not affected;and, second, to the fact that, after unfavorableconditions in the flax market had led us topostpone the sale of our flax crop, we had todispose of it later at such low prices that therevenue from flax was considerably diminished.During the second half-year, after the newand comparatively good harvest had beengathered in, conditions became more favorable,partly because imports of grain for immediateconsumption declined. At the same time, ex-ports began to show a decidedly upward ten-dency, especially in the case of timber, flax,butter, and various manufactured goods.Trade returns for the second half of the year,therefore, were less adverse than those of thefirst half-year; but, owing to the enormousexcess of imports during the first six months,the final results of our foreign trade in 1929were very unsatisfactory.Balance of payments and reserves of thebank.—As was to be expected, the adversemerchandise balance was reflected in the bal-
i Taken with some textual revision from the English translation pub-lished by the bank. In addition, the report contains sections dealingwith State
 finances
 and credits, private credit institutions, agriculture,industry, and commerce, and gives tables and charts showing detailedoperations of the bank.
ance of payments. The adverse balance ofpayments was, of course, smaller because (1)the merchandise balance is always less adversethan is shown by official calculation; (2) theinvisible items in the balance of payments aregenerally favorable, and these were augmentedlast year by the flotation of a foreign loan.Owing to the adverse balance of payments inthe first half-year, the foreign currency reservesof the Bank of Latvia declined by 27,000,000lats ($5,211,000). These reserves had alreadydeclined by 14,000,000 lats ($2,702,000) in thelast quarter of 1928. With the improvementnoted in the second half-year, and the practicalrestoration of equilibrium, there was no furtherreduction in the bank's stock of foreign cur-rency, which actually increased by nearly4,000,000 lats ($772,000). The net decline inforeign currency reserves for the year was23,000,000 lats ($4,439,000), but the bank'spermanent stable reserves always much morethan covered the issue. The bank put intocirculation only 45 per cent of the permissibleissue; and on January 1, 1930, bank notes incirculation were covered to the extent of 121per cent by gold and foreign currency.Credit policy of the bank.—Various changestook place in the employment of resources lastyear, as shown by the altered proportion of thesums allocated to loans, reserves, and bonds.Whereas in the two preceding years the reservesincreased constantly and the amount of creditsremained practically unchanged, last year cred-its increased considerably, while reserves de-clined. The actual increase of credits was evenlarger than indicated by the figures, inasmuchas for several years the bank's loans transferredto the Latvian Mortgage Bank have beenincluded among loans to manufacturers, andhave only lately, since the receipt of debenturesof the mortgage bank been shown in the figuresof investments in bonds.Although the bank's total credits increasedconsiderably last year, the fundamental prin-ciples of its credit policy have not been altered.Every precaution was taken in the granting ofnew credits, and they were extended only forpurposes of normal economic development.
July 1930
 
JULY, 1930
FEDERAL RESERVE BULLETIN
 7
Compared with the large advance in creditsextended by the State, as a result of the diffi-cult agricultural situation in the past year, cred-its of the Bank of Latvia showed a very mod-erate increase. Larger credits were granted toagriculture through the State Land Bank, andthe Bank of Latvia had to exercise great carein order to prevent their causing too great anexpansion of the note issue and of the volumeof imports. Economic requirements produceda considerable increase of exports as it was,which would have been still greater if the Bankof Latvia had adopted an easy credit policy.In that case, imports would have passed thelimits of necessity, the demand for foreign cur-rency with which to pay for the goods importedwould have been much greater, and the stablereserves of the bank would have been reducedbelow the legal limit. The bank had, therefore,to restrict the demand for foreign currency sofar as possible in order to keep the reserve ratioat the desired level. The result was that notonly did the outflow of foreign currencies ceasein the second half-year, but it even becamepossible to replenish them to some extent.Agricultural credit.—At the close of thefiscal year 1928-29, after the difficulties result-ing from the bad harvest had been overcomeand the new harvest had been gathered in, itwas found that imports showed no signs ofdecreasing and the balance of paymentsrendered no surplus. It became obvious,therefore, that steps should be taken torestrict imports and safeguard domestic pro-ducers against foreign competitors. The mostpowerful weapon for this purpose—namely,the customs tariff—was, of course, available toParliament, but its machinery is not adaptedto cases of urgent necessity. No changes havein fact been made in the customs
 tariff,
 thoughthe need for certain modifications becameobvious when, owing to the low prices of grainin the international market after the harvestwas collected, the position of our farmers failedto improve according to expectations. Inthese circumstances the Bank of Latvia usedthe only means available—namely, its creditpolicy—for adjusting the situation. In orderto restrict the imports, the bank councildecided to grant no more credits against billsof any kind. In order to promote exports, itwas decided not to restrict the discounting ofexport drafts and loans against goods made orproduced in this country. Further, it decidednot to allow the total sum of credits to farmersagainst mortgages on real property to exceed10,000,000 lats ($1,960,000), including the de-bentures of the State Land Bank received inexchange for the loans previously granted tofarmers by the Bank of Latvia and subse-quently transferred to the Land Bank as long-term operations. The latter resolution effec-tively checks the granting of new credits tofarmers, inasmuch as the 10,000,000 lat limithas been reached already.As in previous years, the Bank of Latviaendeavored to relieve the situation of farmers.For, although extensive credits have been dis-tributed to farmers by the State banks, theproblem of agricultural credits is by no meanssolved. In the first place, part of this credithas proved too expensive owing to the lowreturns from agriculture. Second, the formof credit is not always adapted to the needs ofagriculture. This applies in particular to the6-month bills which our farmers often make useof for seasonal requirements and for otherpurposes, owing to the very limited amount ofofficial long-term credit available. Experienceshows that short-term credits are not adaptedto agricultural requirements, as farmers seemunable to accustom themselves to regularsettlement of bills on fixed dates. This leadsto complications and encourages the mistakenidea that protested bills are a normal featureof our economic life.The Bank of Latvia is doing its utmost tomake credits cheaper and to facilitate condi-tions of payment. In pursuance of this aim,credits to farmers have always been grantedon easier terms than to other fines of economicactivity, taking into consideration the lowreturns from agriculture. So far, farmers havehad to pay only 5K per cent for direct creditsagainst mortgages on real property, and therediscount rate to credit institutions in countrydistricts
 WSLS
 5 per cent—that is, from 1 to 2per cent lower than to urban credit institu-tions—with the stipulation that they may notcharge their clients more than 8 per cent forthe sums received from the Bank of Latvia—that is, from 3 to 4 per cent less than is chargedfor ordinary credits in towns.After careful consideration, the council of thebank agreed that even these rates were toohigh under prevailing agricultural conditions,and decided, therefore, on new measures forfacilitating agricultural credits, and for gradualliquidation of credits previously granted butextended from term to term. Briefly, the newmeasures are as follows:The total volume of credit granted to creditinstitutions in the country up to January 1 ofthe current year shall be allocated as from this
July 1930
 
438
FEDERAL RESERVE BULLETIN
JULY,
 1930
date
 for
 agricultural credits,
 to be
 extendedthrough
 the
 medium
 of the
 credit institutions.Consequently, about 30,000,000 lats ($5,790,000)
 of the
 resources
 of the
 Bank
 of
 Latvia
 are
to
 be
 used
 in
 this way,
 and
 so long
 as the
 Statedoes
 not
 reduce
 its
 reserves
 in the
 bank, thissum will
 be
 available
 for
 agricultural creditsthrough
 the
 mutual credit institutions
 in
country districts,
 on
 easy terms
 and at
 lowerrates
 of
 interest.
 The
 bank will charge
 the
credit institutions
 3 per
 cent
 for
 these loans,
 on
which
 the
 latter shall
 not
 charge more than
 5
per cent. Furthermore,
 in
 granting suchcredits,
 the
 bank will accept bills
 of a
 maturityup
 to
 nine months (instead
 of six
 months
 as
heretofore),
 as
 also mortgages
 on
 real propertyin country districts, which
 is not
 overbur-dened.
 At the
 end
 of
 each year, one-twentiethof
 the
 aggregate credits granted
 on
 easy termsshall
 be
 converted
 to
 ordinary terms, that
 is,
the bank will charge
 5 per
 cent
 on
 these sums,and
 the
 mutual credit institutions will
 be
authorized
 to
 employ them only
 for
 short-termcredits
 to
 agriculture, repayable
 on
 terms fixedby
 the
 institutions,
 and not to be
 extended.
Classification
 of
 loans
—The bank's creditshave been distributed among
 the
 differentlines
 of
 economic activity
 as
 follows:
CLASSIFICATION
 OF
 LOANS ACCORDING
 TO
 LINES
 OF
ECONOMIC ACTIVITY
[Lats,
 in
 millions]Date
Jan. 1, 1924Jan. 1, 1925Jan. 1, 1926Jan. 1, 1927Jan. 1, 1928Jan. 1, 1929
 ._
Jan. 1, 1930
Tomanu-factur-ers
15.624.729.642.537
 1
33.536.2Tomer-
chantsI
 To
 far-
| mers'organi-
zations
9.229.128.016.418.414.519.3j
 To
 
credit
To
 |
 insti-
armers j tutions
in
 the
country
1.1
4.34.74.53.03.55.32.713.517.826.027.328.430.8
Tocreditinsti-tutionsintowns
10.125.234.236.538.541.946.6
Interest rates
—Notwithstanding
 the in-
creased cost
 of
 credit in the international moneymarket,
 the
 bank
 has not
 altered
 its
 rates
 on
loans since April
 1,
 1928.
 The
 only change
 in
the bank's rates
 of
 interest,
 so far,
 has been
 the
lowering
 of the
 cost
 of
 loans
 for
 agriculture,
 as
explained above.
 The
 ordinary rates
 of in-
terest
 of the
 Bank
 of
 Latvia
 are as
 follows:
 1) To credit institutions in the country— a) For rediscount of bills, and P
er ceQ
t
(b)
 For special current accounts securedby bills of credit institutions whichcharge their clients 8 per cent orless 5 c) For all other loans and special cur-rent accounts of credit institutionswhich charge their clients 9}£ percent or less 6}£ 2) To farmers— a) For loans against solo bills, securedby mortgages on real estate in thecountry 5}£ 6) For special current accounts of asimilar nature 6}£ 3) To credit institutions in towns— a) For rediscount of bills of credit insti-tutions which charge their clients11 per cent or less 6
(b)
 Which charge their clients 12 percent 7 c) For all other loans and special cur-rent accounts of credit institutionswhich charge their clients 11 percent or less 6}£
(d)
 Which charge their clients 12 percent
 7
4) To private persons and enterprises—
(a)
 For discount of bills
 7}i(b)
 For all other loans and special cur-rent accounts 8 5) For discount of export drafts 6
Gold and foreign currency
—Gold and foreigncurrency form the stable reserves
 of
 the Bank ofLatvia
 for the
 cover
 of
 issue.
 The
 stocks
 of
gold have undergone practically
 no
 change
 in
the past five years. Their slow increase—from8,900,000 lats ($1,718,000)
 to
 9,200,000 lats($1,776,000)—is
 the
 result
 of
 buying
 and
selling gold
 in
 small quantities, with
 the
 offergenerally
 in
 excess
 of the
 demand.
 The
 bankdoes
 not
 deem
 it
 desirable
 to
 augment
 its
 goldreserve
 by
 buying more gold
 in the
 foreignmarket,
 as it is
 more profitable
 to
 deposit
 the
reserves
 in
 first-class foreign banks which
 pay
interest
 on
 them. This policy was justified
 by
the large profit rendered
 to
 the bank
 in
 the pasttwo years, when credits were dearer every-where.
July 1930

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->