Mr. U Tun Wai, Assistant Chief of the Finance Division, was educated at the University of Rangoon, the University of Bombay, and the Yale Graduate School. Formerly Lecturer in Economics at the University of Rangoon and economist in the secretariat of the Economic Commission for Asia and the Far East, he is the author of Burma’s Currency and Credit.
See Economic Commission for Asia and the Far East, Economic Survey of Asia and the Far East, 1950 (New York, 1951), pp. 468–69. The percentages of total short-term loanable funds supplied by commercial banks in 1950 are estimated to be 72 per cent in Burma, 78 per cent in India, 73 per cent in Japan, 94 per cent in Malaya (1949), 79 per cent in Pakistan, 95 per cent in the Philippines, and 91 per cent in Thailand (1947).
The case of Malaya is deceptive as it is really only Singapore that has a fairly large money market. In the Federation of Malaya, money markets are very small.
Strictly speaking, Japan is not an underdeveloped country. But neither is it as developed as the United Kingdom, the United States, or Western Europe (judging by per capita income). Japan is included in this study partly because of its recent growth and partly because many of its problems are similar to those of the underdeveloped countries of Asia and Latin America.
In most countries there are no discount houses supplying funds at call to commercial banks.
For example, in India the Imperial Bank of India’s call loan rate since 1952–53 has been 3¾ per cent on loans below 500,000 rupees and 3½ per cent on loans of 500,000 rupees or more.
There are, however, important exceptions. The rates in Bombay are only a shade higher than in London, and at times certain rates have even been lower. From 1948 through 1953, the government bond yield in India was lower than in the United Kingdom. The reason was that in India the open market operations of the Reserve Bank of India kept the government bond yield artificially low while in the United Kingdom it was allowed to rise.
Especially for a comparison between interest rates in underdeveloped countries, government bond yields are not the most suitable indicator, because different monetary policies and the support of the government bond markets by the central banks may influence government bond yields without necessarily influencing other rates. Furthermore, bond yields are also influenced by the financial position of governments in underdeveloped countries. However, the general level of bond yields, when compared over a long period, can be informative.
In 1954, the central bank rates in Asia ranged between 1.5 per cent (the Philippines) and 7 per cent (Thailand); in Latin America, they ranged between 2 per cent (Honduras and Venezuela) and 10 per cent (Ecuador). For data by countries, see Table 3.
The amount of government securities held by commercial banks before the war was negligible; but with the postwar growth of bank holdings (central and commercial) of government securities, this has become an important weapon of control in a number of underdeveloped countries, such as Ceylon and India.
The rates offered by the larger commercial banks on fixed deposits was raised by about ¼ per cent in August 1952, by another ¼ per cent in April 1953, and again by ½ per cent in June 1953.
Even in October 1953, when central bank loans to commercial banks were at the maximum of Rs 4.7 million, they were equivalent to only 7 per cent of the balances kept by commercial banks with the central bank, and 2.3 per cent of commercial banks’ loans and investments in the private sector.
Even without the increase in the central bank rate, the market rate would have risen, but probably by a smaller amount.
The long-term interest rates as indicated by government bond yields in the two centers are not so closely related as short-term rates because each market has its own central bank policy with regard to the price at which it will support government bonds to enable governments to borrow cheaply.
The percentages were even higher for the earlier postwar years. In 1947, the export percentage was 82 and the import percentage 71. (Central Bank of the Philippines, Annual Report, 1949 (Manila, 1950).) Unfortunately data are not available for prewar years or for years later than 1949.
Chettiars came from Madras to Burma (as to other Southeast Asian countries) to serve as bankers, organized on eastern lines, mainly for financing agriculture.
See U Tun Wai, Burma’s Currency and Credit (Calcutta, 1953), p. 47.
The depression had destroyed the ability of the agriculturists to repay loans to the Chettiars. Insofar as land had been the chief collateral and mortgages were foreclosed, the Chettiars became owners of land.
Until the establishment of the Imperial Bank of India in 1921 there were three Presidency Banks—the Bank of Bengal established in 1806, the Bank of Bombay in 1840, and the Bank of Madras in 1843. Although these banks had the right of note issue until 1862, were partly owned by the Government until 1876, and acted as bankers to the Government, they were basically commercial banks. They did, however, also play an important role in the development and regulation of the commercial banking system until 1921 when they were amalgamated to form the Imperial Bank of India.
See League of Nations, Commercial Banks, 1929–34 (Geneva, 1935), pp. l–liv for further details.
Another factor in India was the large scale dishoarding of gold by the peasant population and the resulting export of gold, which increased the money supply and the cash liquidity of the banking system.
The first group of countries also depreciated their currencies with reference to gold, but most of their important trading partners also depreciated their currencies. In the second group of countries, depreciation was generally much more than that of their main trading partners; by the end of 1934 the currencies of Brazil and Bolivia had depreciated by about 60 per cent, of Ecuador by 75 per cent, of Mexico by 67 per cent, and of Argentina by 65 per cent, while the United Kingdom and the United States depreciated their currencies by only 40 per cent.
Until 1936, the average yield on government bonds was higher than the commercial bank discount rate on 60-day commercial paper.
See Economic Commission for Asia and the Far East, Economic Survey of Asia and the Far East, 1951 (New York, 1952), pp. 191–97.
This may be delayed if underdeveloped countries attempt to implement overambitious development programs and thus create a long inflationary period. The monetary authorities may then have to maintain or raise interest rates to control inflation.