The New York herald. [volume] (New York, N.Y.) 1920-1924, 1920-11-15
FINANCIAL NEWS
AND COMMENT
Meaning of Sensational Break
in Exchange and Effect
on Market.
CREDIT STRAIN GENERAL
Eiquidating Stocks for For
eign Accounts Is Heavy
What 1t May Lead To.
ny WILLIAM JusrUs Borrs.


The rise in dollar credits has reached
a point at which the foreign exchanpe
market virtually has ceased to function
| ana banks have shown growing reluc-
tance TO finance foreign trade transac-
mons. The extraordinary declines In
/ foreign currencies have reached a stage
at which foreign customers of American
firms are confronted with ha wing TO
| pay premiums of 81 to 30 per cent for
New York exchange with which to set
ne for merchandise purchased In the
! United States, which means that Eng-
fish customers in settling for Indebted
ness created here have to pay the equiv
alent OF SlSl for 500 Of goods purchased
in the United States, and France has
| TO pay about $40 for q $50 purchase
| II is easy to see that the unnrecedented
premiums quoted for dollar credits
/ abroad have the same effect in hamper
/ ing our foreign trade rs would the inn
! position of an immense export duty on
| American merchandise The rest of the
world is Indebted to us so heavily that
! dollar credits abroad are quoted at
! prices which make II almost impossible
for our foreign customers to continue
business relations with this country.
Sharp FAN In Exchanges.
With new minimum rates quoted for
exchange on France, Belgium, Italy,
Spain and Greece and pronounced weak
ness in London exchange and dollar
credits commanding prohibitive pre-
miums in Central and South American
countries, besides RISING sharply in
Canada, a situation in which the great
foreign markets are fast closing to
American produce and merchandise. ow-
ing to inability Of purchasers abroad
to buy American exchange at anything
ike reasonable terms, has developed
In that way a virtual deadlock in tn
foreign exchange markets has come
about. and instead Of functioning
! smoothly. as in normal times, actual
! business with several countries has been
reduced TO a cash basis only. which has
paralyzed lar ely American trade with
countries which formerly bought heav-
lily here and reflects the intensity OF
worldwide credit in. which has be-
come more pronounced with the APP
proach of the season In which the heavy
year end payments have to be financed.
The United States is virtually the sole
creditor nation, and although most Of
the world is anxious to do businc SIS with
us the cost of New York exchange
with which TO pay for material pur-
chased here Is so great as to erect an
almost insuperable barrier.
That deadlock in foI eign exchanges
and complications growing out of the
sensational fan in merchandise and raw
material. much of which figured in for
eign trade operations at prices very
much above those now obtaining. have
made II difficult for banks to close up
an immense amount of business requir-
ing enormous aggregate payments. and
has jeopardized the collection of large
accounts and made additional advances
in cases in which foreign business has
been held in suspense or made the sub
Those complications have intensified the
\ credit strain to some extent. making II
impossible for banks to enlarge loans on
collateral securities or participate In I'M
derwitings representing expansion of
business ventures. 1t is an incident OF the
deflation period and suggests numerous
financial problems encountered in re-
establishing business on the price basis
OF normal times. without rediscountinR
facilities of the Federal Reserve system
available the situation would be much
more difficult because the total account
Is probably in excess of that W hich bank.
OF this country ever have been called OF
to finance at this season. IL shows how
varied are likely to be financial demands
in the year end sett ement and how
heavy are responsibilities of a market
which. in addition to adjusting It's own
engagements has to assist many nations
dependent on it for financial support.