STATE AS BANKER.

Auckland Star, Volume L, Issue 199, 22 August 1919, Page 9

STATE AS BANKER.

A DOUBTFUL EXPERIMENT. POLITICAL INFLUENCE A DANGER. '" It is probably unfair to Sir Joseph Ward to expect a full statement of the case for a .State bank in a party manifesto,"' said Professor .). I. Crossmann, of the Auckland University College, when asked for an opinion on this portion of the statement, " but, so far as he has gone, he does not appear to have advanced any very strong arguments in ' its favour. Generally speaking, the best reason for superseding private banks | by a State bank would be to secure for ' the benetfi of the country the large profits now obtained by the existing financial institutions, and to this point Sir Joseph Ward has referred. But it is certainly unwise to assume that a State bank would be nhle to conduct its business as economically and efficiently as the existing hanks, or to privide more satisfactory facilities for public and private finance. Considering the good reputation that our banks have earned, and the extent to which they have ; gained public confidence, 1 do not see exactly what Sir Joseph means by his statement that 'the establishment of a : State bank would give additional stability to the country, and would have a wonderfully steadying influence on all t classes of the community.' Even if we I suppose that a. central national bank would secure for the country the advantages of improved organisation and . greater efficiency and economy, the change would still he open to the objective that it would subject all our finan- , cial institutions to direct political influ- ; eni-e and control." Professor Grossman referred to a ,! statement by Professor Scott, a Tecogi ! nised authority on money and banking. .in support of the argument that a Government would be under the temptation, at certain irises, [to use a State bank for furthering political ends, to the neglect of sound bank- : ing principles, lie also quoted Profcs- , ' sor Scott as saying' that nearly all the | great European Stale hanks had found themselves in difficulties! at various !■ times from this cause. PAPER MONEY .MONOPOLY. Asked about a State note issue. Professor Grossmann replied that in his I opinion the granting to the State of a I practical monopoly of paper money was an actual danger, and one not lightly to be disregarded. "Sooner or later," lie I said, "circumstances are. sure to arise iin which n State bank may be compelled by political authority, aud for purely political reasons, to issue an excessive supply of paper money, anil the results of such an inflation of currency are sure to be disastrous. I observe that Sir j Joseph believes that a State bank could ; be placed entirely clear of political in- ' fluenee, but past experience of State ad- ' ministration seems hardly to encourage 7 such confidence. On some parts of the Minister's statement I am not at all 1 clear. For instance, he proposes to pay *- ">.V per cent to those lending money to the country, but this hardly seems con- " sistent with his policy of cheap money, " to be provided by the country through ■ the State bank—that is, if the bunk is to be run at a profit." ? The professor expressed doubts about the proposal that banking institutions 3 should have the right to use Govcrnf ment stock instead of gold ns a basis for ' note issue. It assumed, he said, not '' only the permanent value of the stock, " but the possibility of converting it into ' "old in large quantities to meet a sild- •' den emergency. He failed to sec tliiit a * State bank would be. ns Sir Joseph r , hoped, a valuable influence in preventing 1 the fall of the rate of exchange against f us. The present unfavourable condition f of the exchanges for Britain, he s added, was almost entirely due to an mrr flation of currency caused by large . issues of temporarily inconvertible * paper, the adverse balance of trule being i a secondary matter. This illustrated - precisely the evil consequences of large r isstn-s of paper money for political (in .. this ease, military and naval) purposes - without due regard for the converti ibility of notes and the maintenance ol adequate gold reserves.