The Press Friday, December 5, 1930. A Central Reserve Bank.

Press, Volume LXVI, Issue 20103, 5 December 1930, Page 14

The Press Friday, December 5, 1930. A Central Reserve Bank.

The cable message from Canberra printed yesterday summarising the report of the Select Committee on the Bill providing for the establishment of a Central Reserve Bank in Australia recalls the controversy aroused when this measure was first introduced in April. It will be remembered that Mr Theodore, who was then the Federal Treasurer, claimed that the measure was necessary for the stabilisation of Australian finance, and denied that it would lead to any revolutionary changes in the functions and conduct of the Commonwealth Bank, which would go on as usual. This was not, however, the view of the Opposition or of a large section of the public, who were convinced that the Government was seeking to control currency and credit in order to achieve its political and social objects. In addition, banking and financial authorities and organisations criticised the trading powers to be given to the Central Bank and objected to the large measure of control which it was proposed to place in the hands of the Government. A Central Reserve Bank, it was widely felt, should have no resemblance to a political institution, but in the scheme outlined in the Bill the political hand was clearly revealed by the provision that on Commonwealth and State accounts bank interest might be paid, and that the Bank might make advances to those Governments without restriction as to amount. This was such a sharp departure from recognised principles of central reserve banking, and opened the door to so many abuses, that the Bill was referred to a Select Committee, and then forgotten by most people until August, when the Committee announced, in an interim report, that opinion supported a Central Reserve Bank as an adjunct to the financial system of the Commonwealth provided it performed the true functions of central reserve banking and was kept free from political control. This view was endorsed last week by the President of the Bank of New South Wales, who warned shareholders that a Central Reserve Bank for Australia, unless established on sound principles, would not be recognised as a Central Reserve Bank by other such institu tions throughout the world, and would therefore be useless in that direction, as well as a temptation to an unscrupulous Government to inflate the currency. If the recommendations now made by the Select Committee do not meet with the approval of the Labour Party, that will be for political reasons rather than for financial. The advice given is based on sound principles, and will be rejected only if the Government is determined to create an institution which is a bank in name but a political instrument in practice when it suits.