RESERVE BANK

Ashburton Guardian, Volume 53, Issue 286, 14 September 1933, Page 3

RESERVE BANK

THE SCHEME CRITICISED.

SIR H. BUCKELTON'S COMMENT.

(Per Press Association)

WELLINGTON, September 13

Interviewed in reference to the statement, made by the Minister for Finance "(the Rt. Hon. J. O. Coates) on the subject of the Reserve Bank for New Zealand Bill, Sir Henry Jhrkleton (general manager of the Bank of New Zealand), expressing his personal, opinion, said he could not agree that Mr Coates's statement would enable the public of New Zealand to underi stand fully the effect: of the Bill. For instance, Mr Coates did- not say how the revenue of the country would be affected if the Bill should be passed. A detailed statement of the losses and gains to revenue likely to result frcm the passing of the Bill should be made public. Mr Coates had not alluded to tho heavy commitments made by the banks to finance the Government. In justice to the banks he should do so.

"The Minister complains of the rate of discount charge'd on freasaxy bills," said [Sir Henry, "but he does not say that by a special and unusual arrangement for rebating bills, the Government obtains a substantial reduction of the rate. Nor does he sav that the banks are willing to reduce "the rate, provided the bank 3 are pub on the same footing for another joint stock companies. "It is also important to bear in mind the proprietary interest of the State in the Bank of New Zealand. Of tho bank's paid-up capital (£0,328,125) the State owns one-third,, namely, £2,109,375. Since it became a shareholder, the State has received dividends from the bank aggregating £3,515,878, equal to 10| per cent, per annum. Based on the latest dividend, and valuing the giltedged security on a 4 per cent, basis, the market value of the State's interest in the bank may be set down at £4,687,475, a goodwill of no less than £2,578,100. It is obvious from these figures that anything which might detrimentally affect the Bank of New Zealand is an important factor which should be taken into consideration when enacting legislation affecting the existing banking system. The Government appoints four of the sis. directors of tho bank, thus ensuring that- the policy of the bank is what its board believes to lie in the best interests of the country." South Africa's Experience. Tho Bill provided that the reserve bank should he exempt from taxation. There was only one reserve bank in the British Empire on the lines proposed for New Zealand—namely the reReserve Bank of South Africa. Owiug to Britain going off the gold standard in September, 1931, the South African institution lost in a short period nearly £1,500,000, though it was true that much of that loss had since been made good (at the expense of South Africa) by working on a very wide margin between the buying and selling rates of telegraphic transfers on London.

Tiie reserve bank system was instituted in the United States in 1914, 12 such banks being established. banks failed to regulate credit, to control interest or excliango rates, to check the wildest speculation, or to prevent the United States from going off tho gold standard. Further, last year the whole of the banks in the United States suspended payment for i 10 days, and some thousands of them had gone into liquidation. In Australia, the Commonwealth Bank, purely a State institution, acted in some respects as a reserve bank, continued Sir Henry, but it could not be said that tho monetary conditions there had been as stable as in New Zealand. It allowed the State Savings Bank of New South Wales, an institution with more than £55,000,000 of deposits, spread over nearly 1,000,000 depositors, to suspend payment. Many of the depositors sustained much loss through having to sell their deposits, and many more suffered great inconvenience until, some months after the suspension, the Commonwealth Bank took over the Savings Bank. "Monetary conditions the work! over are so unsettled, and tho outlook so obscure," Sir Henry continued, "that to interfere ■ with a banking system that has served, and is still serving the country so well, would bo most unwise." Sir Otto Nicmeyer had stated that the establishment of a reserve bank in New Zealand would provide an instrument for co-operation with the central banks of other countries, and that at present there was no suitable point of contact with New Zealand. Sir Henry Buckleton asked what need there' was for New Zealand to be in contact with tho central banks of other countries, save England. "The London authorities found no difficulty in establishing contact with the New Zealand banks when, in November, 1931, the Government was informed, as a condition of its renewing £4,000,000 ol Treasury bills then about to mature, 'You must compel—not ask, but compel—the banks in New Zealand to find in London £1.000,000 a mouth during tho following 12 months to.meet the Government's requirements there. This the banks agreed to do because the credit of the country was at stake. "If the dictatorial attitude of the London authorities in 1931 is an example of what New Zealand may expect from contact with the central banks of other countries, the less tie Dominion has to do with the latter lie better," said Sir Henry. "The banks made extremely heavy commitments to finance the Government's requirements, and the question of Government finance, and the ability of the reserve bank to finance the Government to as great as or a greater extent than, tho Associated Banks, are matters of major importance." BANK CHAIRMAN'S CRITICISM WELLINGTON, Sept. 13. Commenting en Mr Ooates' statement on the Reserve Bank proposa , Mr R. W. Gibbs (chairman of the Bank of New Zealand) said he considered the Minister had carefully avoided any useful criticism and had failed utterly to give any satisfactory reasons for setting

up a central bank in New Zealand, or •the advantages to be derived therefrom, ''unless, indeed, the maze of volubility which his official essayists prepared for him to launch on tho public is thought to do.so. Certainly we are told that a uniform note issue would be a commercial convenience. In what way? "The trading public is quite satisfied .to get hold of the well-backed notes of the trading banks, and it would show no greater preference for the notes o£ the proposed new proprietary institution. The main thing these days is to get hold of the notes. "The Minister denies the dictation of London financiers. Suppose we substitute 'pressure'? He perhaps may not be so ready to deny that it is possible this was couched in diplomatic language, akin to our voluntary conversion. 'He may have been asked; kindly to introduce the legislation voluntarily, but if you don't ! "But .my experience of London finance language is that it is invariably strictly honest, straightforward, direct and unequivocal. "Rash Experiments." "The Minister denies that there should be any restriction of credit due to the requirements of a central bank; another proof of hew little he knows about the question and how deplorably incapable he too often is of seeing the obvious. i "The events connected with the South African Reserve Bank are recent history, as are those relating to the American Federal system, and my remarks thereon are statements of wellknown fact.

"The proposed dangerous interference with the banking structure in New Zealand at the present time, I still maintain, warrants my repeating the Chancellor's remark that this is no time for rash experiments in monetary matters."'