The New York herald. [volume] (New York, N.Y.) 1920-1924, 1922-06-05
FINANCIAL NEWS
AND COMMENT
Sterling Exchange Responds
to Britain's Cut in Income
Tax Rate.
BUSINESS Is BUOYED TOO
Trade in America Continues
to Get Better Month by
/. Month.
BUSINESS IS BU0YED TOO

The attainment by sterling exchange
of position above 4.4s. within reach
ing distance of the 4.50 rate. which
British economists predicted some
months ago as the goal for endeavor
in 1922, naturally causes a wide
search for explanations. 1t was thought
last week when the quotation advanced
a cent on one day and two cents in the
next day that great overhanging
weight had been removed from the mar
ket Feasibility was attached to the
idea that selling of sterling bills from
a particular source had ceased. The ac-
ton of London exchange during May
and part OF April had suggested a great
deal of selling under definite plan OF
procedure. The rate from May l to
June / was quoted under 4.44 only five
times and during most of this period it
moved narrowly around 4.441a. This
savored of control somewhat akin to
that of the war time pegged price of
ATS, but all the known facts belied any
sort OF Artificial sterilization. The sug-
gestion was that large amount OF ex-
change was carefully being eased into
the market under very clever manage
ment.
Quite possibly the British treasury
was engaged in May in transferring bal
ances to New York, perhaps to carry out
announced plans for paying interest In
Tho autumn on the $4,166, 100000 owing
Q the United States Treasury. But the
principal point of attraction now is not
vested in the action of sterling last
month and the causes therefor, but in
the resiliency of the rate once pressure,
from whatever source it came. was re-
moved 1t looked as though the halt In
the rise which occurred after British
taxation plans we're announced few
weeks ago had backed up lot of force
behind the quotation.
Power Behind Firmness.
A part of this power presumably was
speculation, aroused by the rosy In
dications held out early in the week
that German loan would be arranged.
Another part came from the quiet ac-
ceptance by Germany of the Repara-
lions Commissions demands, answered
on Nav 81. and the conciliating ac-
quiescence by France in reparations
moratorium for the remaining months
of 1920 Both of these influences spelled
benefit for British finance and trade,
as well as improving conditions on the
Continent: but the indication that they
were hardly sufficient Of themselves
TO propeI sterling forward was supplied
by the relative sluggishness of French
exchange and the hesitant rise OF
marks. The explanation for the recov-
cry of the London rate lay far deeper
than projected decisions on German
loan and a more amicable attitude of
France toward Germany.s financial prob
lens.
II is safe to believe that sterling's
sturdy progress had its genesis in the
British Governments determination to
cut the income take more than 16 per
cent: to reduce certain imposts on
Injuries (some could be classed as
necessities) 80 per cent. or more. ana
in a budget arrangement for the cur
rent fiscal year which despite cuts IN
taxes would not show deficit. but might
disclose at the end a black ink balance
of $3.50, 000, 900. The taxation experts on
this side gasped when the British plans
were announced in the spring, but
nothing except respect for the program
could be displayed. While the British
cot ont to hold their debt practically
stationary. elements in Congress here
were seeking to expand the American
debt by some s40oo,00o0oo through a fool
ish soldiers bonus. Although Britain mad
small hope of reducing her debt during
Tho year. she acted to make II easier
for private business to expand through
the conservation to individuals OF their
income and principal. That program
is what helped last week to shape the
inward swing of sterling and 1t has
sun,cvted all of the advance from the
4.s7Ia level of April l.
The rise of sterling Is worth more DIS
cussion than anything else that mas
happened in the last few days. 1t was
more practical than news from the In
ternational bankers conference. for the
work done in Paris was merely OF a pre-
,iminary nature. A loan OF $1,000 ,Ooo
with all that It would mean to Ger
many In the way of foreign balances
to buy raw materials; with all that 1t
would mean to France, cash In HAND
instead of haggling over reparations in
stallments, was awaited as a possibility.
but Il was realized that much work still
remained to be done before .he thing
was accomplished. For one thing, Ger
man acceptance OF conference findings
was not yet fully assured of support by
the German citizenry and politicians. 1t
was plain that q big job lay before the
bankers to insure proper security for
the loan. The task of disposing OF SO
great a block of bonds would have to
be handled after the terms were ar
ranged.