BANKS AND MONEY.

Auckland Star, Volume LXVI, Issue 227, 25 September 1935, Page 21

BANKS AND MONEY.

I have never, as asserted by Mr. .Tno. Payne, exhibited ignorance of the tact that banks grant advances aggregating about ten times their cash reserves. But to say that because banks lend in excess of their cash reserves tliey charge interest on what "has no existence is simply nonsense. Every bank borrowci can use his loan for the purchase ot capital goods and it is for the use ot these goods that he pays interest. He purchases these goods with the clicqucd he draws on the bank and the depositing of these cheques makes the bank liable for the cost of the goods. Thus the return of the advance is required to enable tho bank to return the equivalent deposit and interest must be added to enable the bank to meet its working expenses and to pay interest to depositors. Banks cannot be run with nothing. To substitute the issue of notes for Government borrowing, as Mr. Payne suggests, would be a crazy policy, impracticable except for slioi t pel iods in cases of emergency. Oui note circulation is usually about six millions and our annual Government borrowing until quite recently usually reached the same amount. Thus if notes were issued in lieu of Government borrowing our note circulation would be doubled in a single year and in ten years it would be increased tenfold. Such a degreo of inflation would be preposterous and would be barefaced robbery of all creditors. Manurewa. J. JOHNS I ONE.