TREASURY BILL FINANCE

Evening Post, Volume CXVII, Issue 148, 25 June 1934, Page 8

TREASURY BILL FINANCE

Comment by the "Economist"' on New Zealand budgetary policy makes interesting reading in. the light' of facts made available in the statement of the Public Accounts for last year. The ""Economist," "commenting on New Zealand recovery," suggests that

future budgetary policy should follow the Australian i example of freely using Treasury bills even if this is counter to Now Zealand banking conservatism. In view of tho gap between producers' costs and prices, financial policy must aim at a long period of regulated adjustment in order to 'take full advantage of world markots. As further ovorseas borrowing and cuts in expenditure are impossible- tho narrowing of New Zealand export markets makes it vital that Britain should be induced to agree to reciprocal free trade. Tho value of tho New Zealand market to Britain gives her strong bargaining power. '

The reference to New Zealand recovery is, we assume,,a reference to "the Budget improvement;' but this' can scarcely be described as recovery when'it is,remembered that there is the London surplus credit liability in the background—in a suspense account.; Possibly, it is in reference *to this that the "Economist" advises, free use of Treasury bills. The New Zealand GovernmenC has anticipated , that advice, for, last year the Treasury hill transactions on the receipts side weret—Under the Public Revenues Act (including issues in renewal) £39,606,077; under the Banks Indemnity (Exchange) Act (including issues in renewal and conversion), £161,652,748. This, it must be clearly understood, presents the 'sum of Treasury bill transactions and does not'indicate the amount of debt at any particular date, as a bill may :be renewed several times in the year. Buf it does, show that free use has !been made of this method of finance, | New Zealand banking conservatism" notwithstanding.

The question raised is: Should this method be continued? It is an emergency means of finance. Treasury bills are short-term loans, to be renewed or redeemed as revenue becomes available. Essentially v they are intended to provide the Government with funds in anticipation of revenue, when there is not a big cash balance to work on. Certain statements suggest that the Government is minded to continue this method. It has been counting the saving it. will make on Treasury bill issues when they are made through the Reserve Bank instead of through the trading banks, which have been charging 5 per cent. But the handling of substantial bill issues at low prices must have its effect on i the Reserve Bank's capacity to deal with general finance. Ig it intended that the Reserve Bank should concentrate its attention on providing cheap Treasury bill finance for the Government, to the neglect of other business and without regard to the obligation placed upon the Bank to "exercise control . . . over monetary circulation and credit in New Zealand, to the end that the economic welfare of the Dominion may be promoted and maintained"? The "Economist's" reference toy the Australian example, .strange to say, is made just as we receive a message from Australia to the effect that Sir Claude Reading, chairman of the Commonwealth Bank Board, has stated that "the board had informed the Loan Council that it wa3 seriously concerned with the amount of finance sought from the Bank." Evidently the^ Australian example is not one which the Commonwealth Bank is prepared to recommend without reservations. We may hope, however, that the "Economist" advice will not prove to be an authoritative forecast of our future policy. The concluding reference to a.bargain for reciprocal free trade suggests that it is