RESERVE BANK BILL

Ashburton Guardian, Volume 70, Issue 256, 16 August 1950, Page 6

RESERVE BANK BILL

SECOND READING MARGIN OF 10 VOTES (P.A.) WELLINGTON, Aug. 15. The Reserve Bank of New Zealand Amendment Bill was given a second reading in the House of Representatives this evening after •the Prime Minister (the Rt. Hon. S. G. Holland) had taken urgency on the passing of the measure. The voting on the second reading was 40 to 30. The House then entered the committee stages. Mr H. E. Combs (Opposition, Onslow), the first speaker when the debate was resumed, asked what would be the position if a difference arose between the Minister of Finance and the Governor of the Reserve Bank over the reserve ratio. Would the Governor and also, if he were involved, the Secretary of the Treasury, be heard at the Bar of the House when the Minister presented a motion embodying a proposal over which there hpd been a difference? With a motion before the House a war of personalities divorced from the principle of the motion or its merits might ensue and continue into a state of discussing whether the two officers he had mentioned were worthy to continue in their office.

The Attorney-General (Mr T. C. Webb) said that the making of policy decisions of the bank subject to the control of the House would remove the suspicion, which had long existed, that the affairs of the bank were being controlled by one man. There were many economic factors which the Reserve Bank did not control, such as wages, and it therefore could not be said in the Bill exactly how the bank was to achieve a stable internal price level. He believed, however, that although it was impossible to create a fixed price level New Zealand could achieve one steadier than there had . been in the past. Stability could .Tiot be achieved by rigid controls, for apart from their objectionable nature, they were inevitably circunyvented people resorting to the black market.

.Mr. Webb, said that New Zealand .coulci'not let its overseas exchange rate fluctuate freely without creating chaos in her external trade,_ but internal prices could be stabilised to a greater extent than they had been. A sound financial policy would cushion the effects on prices of various factors. It remained to be seen whether the Bill would succeed, but its objective was worthy. . Mr C. L. Carr (Opposition, Timaru) said that any Government should have the best available advice on financial matters, but the Government itself must shape its policy and not leave policy-making to the experts. Mr Nash Defended The previous Minister of Finance, the Rt. Hon. W. Nash, had been called a dictator because he had refused to allow interest and discount rates to be determined by persons who were not the people’s elected representatives, but this Government was rewriting the Reserve Bank in a way Mr Gordon Coates was too wise to do. Mr Coates was a liberal-minded man, who had excellent advisers, and who was not misled by men who later proved almost too radical for the Labour Government. Mr Carr said he was referring to men like Dr. Campbell, now head of the Public Service Commission, Dr. W. B. Sutch, and Professor Belshaw, all of whom held radical views. The Bill merely paved the way for further instalments of the Government’s financial policy. It was just a deceiving, misleading gesture. The Minister Assistant to the Prime Minister (Mr F. W. Fortune) said it was realised that by monetary action alone a stable internal price level could not be achieved. There was no suggestion at all that the Reserve Bank by itself could achieve that objective. but the bank itself should be free to decide how to conduct its everyday business without arbitrary Government interference.

Mr P. Kearins (Opposition, Waimarino) said that monetary action unwisely used could easily create instability, and if it were exercised by private individuals not responsible to the Government anything could happen. What would occur if the directors of the bank decided to raise the interest rate while- Parliament was in recess? If the Government raised its own rate, overdraft rates and interest on every type of loan would increase, and living standards, except for investors, would decrease correspondingly. Mr E. H. Halstead (Government Tamaki) said that the Bill was part of. .the Government’s plan to make money go further. Amid Opposition laughter, 1 He added that it was part of a plan aimed at stabilising New Zealand’s currency. Mr C. F. Skinner (Opposition, Builer): A long-range plan. The steps which the Government had taken to achieve stability were outlined by Mr Halstead. He said there-had been a reduction of Government expenditure and taxation, a reduction in the issue of Government bills and credit creation, and subsidies had been reduced. There would be a reduction in price supports, for which plans would be produced. There had been an increased supply of goods and increased production, and the removal of price controls where shortages - no longer existed. Mr Halstead thought that there could be no greater flexibility in interest rates, but the Bill did not give the Reserve Bank power to increase those rates. He added that among the indications that there was inflation was the fact that there was over-employ-ment and that goods and services had not kept pace with the volume of money in circulation. However, in the Ajpril-June period this year, the volume of money had been reduced by £15,000,000. Already the Government was beginning to achieve stability. Mr M. Moohan (Opposition, Petone) said that the House had not yet been told of the necessity for the amendments to the Act nor of the purpose behind them. A stable internal price level implied that commodities for which there was a daily demand should be subsidised, but the Government had created instability and increased living costs by removing those subsidies. The allegation that Mr Nash was a financial dictator was against all the evidence. Any instructions he gave the Reserve Bank were merely communications of the Labour Government’s policy, i Mr S, W. Smith (Government, Hob-

son) said that inflation in New Zealand had gone a long way toward the ruinous inflation experienced in Germany after the First World War, and the new Government’s task was to clean up the mess it had inherited. The Government would enjoy the help of the people in its battle for a return to financial sanity. He believed it would also have the help of the Opposition. Mr W. E. Parry (Opposition, Arch Hill) asked whether the Bill was an indication that interest rates would be increased. Mr Holland: The Bill says nothing about interest rates whatever. Mr Parry suggested that there was an upward rise in interest rates, but Mr Holland denied that there was an increase. After Mr W. A. Sheat (Government, Patea) had spoken, the Leader of the Opposition (Mr Fraser) said there had been no explanation of what a stable internal price level meant, nor was any given as to how it was to operate. The Bill contained the pretence that Parliament dominated, but it was the Government party which had the power. The Government would have to take immediate action in a crisis without awaiting the authority of Parliament, to make a decision. The Bill meant nothing and would achieve nothing, and would only he an encumbrance on the Statute Book without any good result. Other speakers included Mr B. Y. Cooksley (Government, Wairarapa) and Mr C. H. Chapman (Opposition, Wellington Central). , The Bill was given a second reading by 40 votes to 30. HOUSE PASSES MEASURE GOOD MARGIN RECORDED (P.A.) WELLINGTON, This Day. After a passage lasting two and a half hours in. the committee and third reading stages, the Reserve Bank of New Zealand Amendment Bill was passed by the House of Representatives at 2.7 a.m. to-day. No amendments were moved by the Opposition, which chose to contest the short title of the Bill and one clause and force the House to divide. After a fairly long discussion, the short title was agreed to by 37 votes to 28. The Opposition called for a division on clause 4 of the Bill, which requires the bank to maintain reserves sufficient to provide a reasonable margin for contingencies, and which repeals existing provisions relating to the minimum reserve ratio. The clause was agreed to by the same margin. The House divided on' the third reading of the Bill, which was carried by 3S votes to 28. The Bill was then passed. Before the House rose Mr Holland, replying to the Leader of the Opposition, said that Ministerial written replies to questions would be taken this afternoon-and in the evening. “The House could run through the 113 or 17 other Bills on the order paper.” Mr Fraser: Only 16 or 17? Mr Holland: Oh! There are another 30 ready. The House rose at 2.10 a.m. until 2.30 this afternoon.