CASH RESERVE RATIO

Evening Post, Volume CXXIV, Issue 13, 15 July 1937, Page 12

CASH RESERVE RATIO

RESERVE BANK OF NEW

ZEALAND

The Midland Bank, London, referring to cash reserve ratios as a factor in monetary policy, remarks that neither in India nor South Africa did the central banking law permit any elasticity in the cash reserve requirements. But it was different in New Zealand, where, in the course of revising central bank legislation only recently enacted, an element of flexibility Was introduced. The Reserve Bank of New Zealand, it is explained, was established under an Act of 1933. This prescribed that banks operating in New Zealand should maintain balances with the Reserve Bank amounting to at least 7 per cent, of demand liabilities and 3 per cent, of time deposits in New Zealand. Following' a change of Government, amending legislation in 1936 gave power to the Governor of the Bank, acting with the authority of the Minister of Finance, to raise or lower the reserve rcouirements from time to time if necessary as a means of main* tabling effective monetary control, the proportions stated in the law, however, setting a lower limit to the scope of variation.

"Ever since the conclusion of the preliminary period for building up balances at the Reserve Bank of New Zealand (the Midland Bank points out) the statutory requirements have been far exceeded, but the minima have not been raised, presumably because there appears to be no likelihood of a dangerous expansion of credit on the basis of the excess cash resources."