17th January, 1929
PERSONAL AND CONFIDENTIAL
(Due to arrive Canberra 16.2.29)
My dear P.M.,
Montagu Norman  asked me to visit him on the evening of 15th January, the day before the 8 million Commonwealth Loan was issued. I had been seeing Sir Otto Niemeyer at the Bank of England several times previously on the subject of information that would be helpful to Australia regarding note forgeries and the best methods of coping with them-that Major Jones  was anxious to know about. Niemeyer was present during my talk to the Governor and I thought it was to be about the counterfeiting business-but it turned out to be otherwise.
Norman started by outlining briefly the financial history of the last few months. Three months ago London had become, he said, the only market where capital could be raised. New York had drawn in its horns at that time and had refused or very much curtailed all foreign requests for loans. They obviously wanted all their money to finance themselves. Amongst other reasons their stock market was absorbing large sums to maintain itself. For this and other reasons he was advised that, in the past quarter and probably for some time to come, New York wished to efface itself from the foreign loan business, the burden of which was consequently thrown on London.
Before the War, London had what amounted to unlimited money to lend abroad. This was no longer the case, and considerably more care had to be used in floating loans here-the price and the time of issue had to be right, and there had to be proper co-ordination between the borrowers to avoid clashing and to avoid spoiling each other's market. There was no regular machinery for effecting this co-ordination, but within the Empire at least the various borrowing governments usually informally consulted the Bank of England and were given the best and most disinterested advice.
Norman went on to say that towards the end of 1928, three Governments had notified him that they desired to float loans in London-New Zealand, India and Australia-and had asked his advice as to price, etc. He had advised them to the best of his ability and his advice had been accepted in the case of New Zealand and India. These two loans went off quite well and the stocks now stood at par or at a slight premium-evidence that his judgment had not been at fault.
But in the case of the Australian loan, whereas he had advised 97 to 97 1/2 as the issue price, his advice had not been taken and it had been decided to issue at 98, and it was his opinion that the bulk of the loan would be left on the hands of the underwriters.
He had made every reasonable effort to get his voice heard in Australia, he had talked to Glendyne  (who completely agreed with him and who had telegraphed Australia in strong terms on the subject), he had talked to Scott  of the Commonwealth Bank in London and had telegraphed to Mr. Riddle , Governor of the Commonwealth Bank in Australia. He had no standing in the matter other than that of an authority whose advice had been asked and who had the good of the Empire at heart.
When several Empire borrowers were on the London market for loans at about the same time, there had to be gentlemanly agreement between them so that the loans were issued at a fair price, in order that the market for the late comers was not spoilt by the undigested stock of the earlier borrowers being still on the chests of the underwriters.
In this case we had nothing to complain about in the matter of the New Zealand and Indian loans-they were issued at a price that ensured a good reception by the public and the market, in consequence, was in good shape to receive the Australian loan. But what would have been the position had the Commonwealth loan come just before the other two? The failure of the Australian loan would have meant at least a partial failure of the other two loans as well, as the market would have been suffering from the psychological effects of the Australian issue!
The Bank of England had no axe to grind other than to keep the ship on an even keel and to try and ensure fair play all round.
I asked the Governor at this stage if he had any suggestions to make as regards machinery for the co-ordination of Empire loans in London. He said that, in his opinion, no machinery was necessary other than the necessity for consultation. He then said, not in so many words but in effect, that it was little use asking advice in London and then making decisions in Canberra in face of this advice. If it was felt in Australia that their financial advisers in London were not authoritative, then why not set up a London Board for the Commonwealth Bank of trustworthy and experienced men whose advice Australia would be prepared to take in these matters? This whole matter of consultation on Commonwealth loans has been in the mind of the Governor for several years. I have heard him speak of it before. I attended very carefully to what he had to say on this occasion and after reading this letter through in draft, I feel sure that I have reproduced accurately what he wanted to convey.
The above represents the Bank of England and, generally, the 'London' point of view. I realise, however, that, with the ratification of the financial arrangements between the Commonwealth and the States  in view, it was probably considered necessary, from political considerations, to make this issue at no lower price than formerly.
I am, Yours sincerely, R.G. CASEY