THE COST OF THE BANKS' GOLD

Press, Volume LXX, Issue 21087, 12 February 1934, Page 15

THE COST OF THE BANKS' GOLD

TO THE EDITOR OF THE PRESS. Sir— Surely Mr Atmorc is not taking i»to account all the facts of the cose when making his estimate of the f profits of the gold purchased by the banks. Mr Atmore will not deny that the notes which the miner receives for his gold have a certain value or purchasing power. Let him now ask himself what gives this value to these notes. Broadly speaking, it is the credit of the banks. That credit rests upon lhe ability of the banks to meet their obligations, and among these obligations must be included the obligation lo make certain payments in gold. It is possible, for instance, that the mine owner who receives 1000 notes from a New Zealand bank may wish to purchase a motor-car of French manufacture. He pays the notes to a local agent, that agent has to remit the money to a French bank, who will accept payment from New Zealand only in gold. The agent takes the notes to the bank of issue and instructs the bank to transfer the money to France. What happens is that the bank must either ship the gold itself or make some equivalent arrangement. I am not an authority on banking but submit that the possibility of such

contingencies has to be taken into account. If I am making any mistakes I should be glad to have them pointed out.

No doubt the possession oJ! gold by the banks is an advantage and to some extent a •source of profit. It enables the banks to increase their note issue in certain circumstances and in a ratio determined by act of Parliament, but such an increase would be made only if the requirements of trade justified it. certainly not merely to enrich the shareholders; and. moreover, the advantage benefits the depositors and the commercial community as well as the banks.—Yours, etc., ENQUIRER February 9, 1034