BANKS AND MONEY.

Auckland Star, Volume LXVI, Issue 213, 9 September 1935, Page 6

BANKS AND MONEY.

it might have struck "J.C." as rather remarkable that the Governments of Australia borrow enormously at current rates of interest when they could, according to him, obtain loans free of interest from their own bank. That no bank can in fact grant interestfree Joans without defrauding taxpayers or some other party should be obvious enough. A bank might conceivably issue loans aggrer .ing. a million, though itself possessing no capital available for lending, but in such a case every cheque drawn by its borrowers would need to be deposited," since obviously none could be cashed. • The position of the bank would then be that while one million would be owing to the bank .by its borrowers it would itself owe one million to its depositors. Thus the bank would gain nothing, apart from interest, and a bank, like any other business concern, cannot be run with nothing. Moreover, this bank would need, to attract deposits equal to its advances—which is, in fact, substantially the position of all banks—and it can only do eo by offering interest, as only a limited volume of free deposits can be secured. Thus not only must a bank charge interest, but the rate charged on advances must be substantially higher than t'he rate paid on deposits to enable the bank to recover its working costs. J. JOHNSTONE.