TRACTS FOR THE TIMES.

Auckland Star, Volume LXV, Issue 106, 7 May 1934, Page 6

TRACTS FOR THE TIMES.

RESERVE BANK

A NOTE OF ITS PURPOSE. (By PRO BONO rUBLICO.) A correspondent concludes rather a long letter condemning the establishment of a Central Reserve Bank with the statement that ■the bank "will take the control of the currency out of the hands of the State for ever and ties New Zealand hand and foot to sterling and the Bank of England." 1 think I know what he means. But, of course it is not true that the control of the currency is to be taken out of the hands of the State for ever. The power that makes can also break, and if Parliament Iβ dissatisfied with the currency position at some future time it can make whatever changes it likes. \ Reserve Bank cannot act in defiance of the will of Parliament or of the people indefinitely. It can resist pressure, can delay measures ot which its Governor and directors disapprove, but if Parliament wanted to change the coinage system altogether it could do so. As for tying New Zealand to sterling, that is really nothing new. Our currency ha* been tied to sterling since most of Uβ can remember. Rather, "based on sterling" is a better term, because credit and currency in New Zealand June always? been controlled by the amount of credit owned by us or by our banks in London. L have explained this time and again. When our credit has been plentiful in London it has been plentiful here—at any rate until the Government stepped in and fixed the rate of exchange. What we are operating now is called, 1 notice, the "sterling exchange standard," to distinguish it, from the strict sterling standard or the gold standard. Personally, I don't think it works at all well, but [ would rather «oe it worked by bankers than by the Government directly. However, my correspondent ie entitled to his view that "we took a step backward when wo surrendered the freedom to arrange our currency to suit ourselves." He fays, quite rightly, that the Reserve Bank will have to keep ite London reserve at the Bank of England, "so that if any tiling happens to the Bank of England, or to sterling, we shall be in the soup." My only comment is that, Reserve Bank or no Reserve Bank, any serious credit or currency development in England must have an echo in New Zealand. What my correspondent overlooks is that the establishment of a Central Reserve Bank looks a little beyond present-day conditions. One reason for it, certainly, is the desire to ritabili.se Empire currencies in relation to sterling, in accordance witli the resolution adopted after the failure of the World Economic Conference. Another intention, I think, is to regulate the credit supplies within the Dominion so as to avoid the violent fluctuations that have occurred in the past. It will lie an advantage to London to have a chain of Reserve Banks throughout the Empire, but what is of greated-t importance to us is that it will undoubtedly be to our advantage to have a Central Reserve Bank here.