CENTRAL BANK.

Auckland Star, Volume LXVI, Issue 243, 14 October 1933, Page 12

CENTRAL BANK.

MR. COATES' BILL.

REPLY TCI BANKER'S CRITICISM. EXPERIENCE OF OTHER. COinSTTRIES. We have received the following letter from Mr. J. Hislop: — "I trust the public will not follow the scent of the proverbial red herring to be drawn across the path of the Reserve Bank by Sir Henry Buckleton, in liis criticism of the Rt. Hon. J. G. Coatee advocacy of the centralising of our banking system. It says a great deal for the patience of the minister of Finance that he has not called upon the directors of the Bank of Xew Zealand to state whether the board are in agreement with the criticism voiced by their general manager. After seeking the advice of the befit authorities in the world, the Government have decided that the monetary system of New Zealand should be so reformed as to enable this Dominion to make proper contact with other Empire countries and international finance generally. Sir Henry Buekleton, however, offers an isolated opinion that this is not necessary, but can cite no authorities to support his contention. Experience Abroad. "Let us see what weight of evidence ! can bo found to support the lit. Hon. J. G. Coates in bringing about this reform in our monetary system. First, we have the experience of the Bank of England, who centralised their system in 1844. The Bank of Franco followed suit in 1871, Germany, Italy, Japan and other countries at. later dates. In 1913 the Federal system of America was brought into vogue. In 1921 the Financial Committee of the League of Nations, recognising the necessity of meeting the financial problems due to the war, urged all countries to centralise their banking systems. In 1927 Sir Ernest Harvey, deputy-governor of the Bank of England, visited Australia and advised the "Australian Commonwealth to centralise their banking system. In 1931 the same advice was given by Sir Otto Nierneyer and Professor Gregory, and in the same year the McMillan Commission urged all countries to centralist their banking systems. In 1931 also the Gold Delegation of the League of Nations, to give effect to their valuable

gold report, urged the same reform in all banking systems. Following this, in 1932 we had the Ottawa Conference still giving the same advice, and in 1033 the London Conference confirmed the opinion expressed by all these previous authorities. Now, which policy should tho Government of New Zealand follow —that of international authority .and experience, or the private opinion of Sir Henry Buckle ton? Gold Reserve. "Sir Henry's remarks about the gold reserve and its ratio to tho note issue has nothing to do with tho centralising of our banking system. The idea of gold and silver as a backing to notes had its origin in the dark ages, when the goldsmiths and silversmiths of Cheapside advanced notes of credit against the family plate to my lord duke, when he came to the city to conduct his business and enjoy himself. Whatever may have been necessary regarding the backing of the noto issue by gold in private banking corporations, this is not so important in connection with central reserve banks. The Central Bank's responsibility is to provide international exchange in the most convenient form, and while gold may be necessary as an international balancer, it really has no true relationship to the internal note issue. Sir Henry next shows concern that the Government may fail to collect the note tax from the Reserve Bank. If so, then this is the first instalment of relief in taxation for the commercial community. Ho surely does not expect us to believe that the bank pays this tax without collecting it from its customers.

"Sir Henry Buckleton finally asks: 'What country in the world has a better note issue than New Zealand, and where will we find one with more elasticity ?' The reply to this question is, practically every country in the world has a better note issue than New Zealand, for where can we find any country with 1,500,000 people, with six separate note issues, six separate gold reserves, and six separate discounting associations with London? I doubt whether such another country could be found.

"Our note issue is certainly elastic, seeing that at tho present day we have a note circulation of some £5,000,000, all the notes promising to pay on demand £1 sterling, and each bank has contracted to fulfil this promise, while the New Zealand currency «lias moved 25 per cent away from sterling."