BANKING QUESTIONS.

Auckland Star, Volume LVI, Issue 199, 24 August 1925, Page 4

BANKING QUESTIONS.

NEED FOR CENTRAL INSTITUTION. (By BANKER.) The fact that Barclay's Bank, one of the "Big Five" British banks, is arranging a merger with the Colonial and Anglo-Egyptian, and National Bank of South Africa has caused the "Times" to express the hope that new reserve or central banks will be evolved or established in Canada, New Zealand and elsewhere. The first of such central banks was the Bank of England, which was gradually forced into the position. It is to-day the bankers' bank in the United Kingdom, as well as being the I bank of the British Government. The I position the Bank of England now occupies appears to be the logical result of its exclusive rights of note issue, and the development of the clearing house system. All the banks in London, including the foreign banks, maintain credits at the Bank of England, and the bank rate fixes the price of money for the time being. The real money market, as it is called, is made by the bill brokers. Every morning these brokers visit the banks with which they are accustomed to do business and arrange for loans for the day, or for overnight, or maybe for a week, the rate of interest depending upon the supply of funds at the time and the bank discount rate. In times of stress, when the banks themselves are in need of funds, fine 'trade paper, , with bank endorsement, can be re-discounted with the Bank of England, and this re-discounting appears to be the principal function of a reserve or central bank. The Bank of France, and tlie Reielißbank perform similar functions in their respective countries. A few years ago the United States Government set up reserve banks, of which there are about a dozen in the country, and their function is to re-dis-count bills for member banks, and they thus exercise some control over the money market. The Commonwealth Bank in Australia, and the Reserve Bank in South Africa no doubt perform similar services in the matter of re-dis-counting bills. It is suggested that New Zealand should establish such a central institution, and most bankers will agree with that. It would not be a difficult matter to establish such a bank here, for, the Bank of New Zealand could very easily undertake the work if the necessary legislation were passed. It is desirable that we should have such an institution so as to regulate the price of money or credit on a more scientific basis and free from all political interference. Some people seem to attach extraordinary importance to 'cheap money,' and think that something great has been achieved if the rate of interest is pegged down to below its true economic level. The Government's efforts in this connection have not been inspiring, and it is only a Dominion Government that would lend at 4* per cent the money it borrows at 5 per cent', and fail to recognise that this is monopoly plunder of the taxpayers, who can offer no resistance. Money is cheap or dear in relation to other tilings, such as commodities, land, etc., and if money is cheap these other things must be dear. It is this stupid attempt to peg down the rate of interest that has been responsible, and is still responsible, for the inflation of land Values, which has already brought ruin to many hundreds of farmers during the pa&t four or five years. Even last month there were twenty-three bankruptcies of farmers out of a total of 81 insolvencies for the month.