CENTRAL RESERVE.

Auckland Star, Volume LXIV, Issue 249, 21 October 1933, Page 11

CENTRAL RESERVE.

attitude of banks. STATEMENT BY MR. GROSE. JKDEPENDENCE of control. : (By Telegraph.—Own Correspondent.) WELLINGTON. Friday. An official statement oil the subject of the proposed central reserve bank -was made to-day by Mr. J. T. Grose, chairman of the Associated Banks, as follows: "One bank opposes the establishment of a central reserve bank and the others approve of the establishment of such a bank, provided it is constituted on sound, proper and fair lines. There has been evident for some years a growing appreciation of the value of central or reserve banks as machinery for the management in the national interest of currency and exchange. The decision of the Government to legislate for the establishment of a reserve bank in New Zealand will bring the Dominion into line with other Dominions and our Mother Country. "In South Africa a reserve bank has been established, and legislation has just been entered upon for the establishment of another in India (and Burma). In Australia, the Commonwealth Bank operates as a reserve bank, and has been of invaluable service to that Commonwealth. The reserve bank par excellence is the Bank of England, which, as banker for the British Government and the other banks, fixes the bank rate, provides emergency currency when necessary, and keeps the cash reserves of the country. Canadian Inquiry. "In Canada, where the banking system approximates to that obtaining in New Zealand, a commission has recently been appointed, with Lord Macmillan as its chairman, to study the Canadian monetary system for the furtherance of 'inter-Imperial and international cooperation for the purpose of raising the level of commodity prices, increasing employment and stabilising industry and finance,' and its work includes a proposal to establish a reserve bank. "So far as New Zealand is concerned, reserve bank soundly founded and conducted would be, the means for effective co-operation with other reserve banks Imperially and internationally. Also through it the gradual establishment of a money market in New Zealand would be possible. "A reserve bank, to be soundly founded, must be safeguarded against political interference, for if it is -subject to the latter, it will do more harm than good. The committee <5n the Indian reserve bank legislation is emphatic as to that, and it is an accepted canon of reserve banking that the best and only practical way to achieve this is that the capital of the bank should be privately owneji and 'that the most careful control of the voting power should be incorporated in the Reserve Bank Bill. "The following statement appears in the 'London Times' of August 10, in the course of observations on the Indian reserve bank — Character of Governor. "The existence of a central institution independent of the Government has Ipng been recognised all over the world, not only as the most efficient guarantee of sound policy, but also as a mark of financial maturity. It is interesting to note, ioo, that one of the few recommendations which the Monetary and Economic Conference was able to agree on was the desirability of setting up central banks in all commercially adult countries.', "To be properly conducted, it is most important that the reserve bank must have as its executive head a governor of such character, ability and experience that he will inspire confidence not only in the Dominion, but abroad. The directors must be of high standing and of proper qualification, and although in the first instance they and the governor, too, would be appointed by the Governor-General-in-Council, the directors should retire in rotation and their successors should be elected by the shareholders, but it is not unusual for a Government to appoint a minority of the directors. Th- successors oof the governor and deputy-governor should also be elected by.the shareholders or the board and be approved by the GovernoT-General-in-Council. "If the reserve Ibank, which it appears the Government has decided to establish, is founded on these essential lines, then "it will provide an effective means for co-operation with other reserve banks and will strengthen the financial position of New Zealand in London and abroad."