RESERVE BANK

Press, Volume LXX, Issue 21226, 26 July 1934, Page 12

RESERVE BANK

ANOMALIES IN ACT TO BE REMOVED FINANCE HILL BEFORE THE HOUSE PROPOSED 1! EI'EAL OF THE EXCHANGE INDEMNITY I From Our Purliamentar;, Reporter.] WELLINGTON, July 25. Repeal of the legislation indemnifying. the trading banks against exchange losses is a provision in the Finance Bill which was introduced by Governor-General's Message and read a first time in the House of Representatives this evening. Several anomalies in the Reserve Dank of New Zealand Act, passed at the last session of Parliament, are removed by the bill. An explanation of the clauses of 1 he bill by the Minister for Finance (the lit. Hon. J. G. Coates) was followed by a long discussion. The appointment of shareholders' directors to the Reserve Uank is validated by one clause in the bill. These directors, when appointed, hr.d not been the registered proprietors of their shares for six months as required by the act; but the clause states that their appointments shall be regarded as valid. Mr Coates said that lie thought the original act was quite clear on the point; but the legal advisers (o the governor of the bank thought it. advisable that, the amendment should be made. Another clause states that, any appreciation or depreciation of the assets of the Reserve Bank, clue to any alteration (hat may hereafter he made in the exchange rate while the value of local currency is not fixed by statute in terms of sterling, is to be credited to or borne by the Consolidated Fund. To that end. the Minister for Finance shall from time to time pay to the bank out of the Consolidated Fund an amount equal to the amount of any depreciation of the assets of the bank (expressed in the currency of New Zealand) due to the fixation by statute at any subsequent time of a. definite relationship between the currency of New Zealand or sterling, or due to any alteration of the exchange rate that may be made by the bank. Conversely. should there be any appreciation of the assets of the bank due tti the same causes, the hank" is recn.iired to reimburse the Consolidated Fund. Amendment to Loans Act A machinery clause provides for provisional amendment of the New Zealand Loans Act, 1932, to become effective if and when 1 he Reserve Bank acts as the registrar of inscribed stock, an office at present held by the Secretary to the Treasury. There is a redefinition of some of the powers conferred on the bank by section 13 ol Ihe ac! passed last year. The power given to discount, buy, and sell bills of exchange is extended to include bona fide transactions in relation to the productioin, marketing, and sale of livestock and primary products. However, the bank shall not at any time acquire any bills or other documents exceeding in value "> percent. of the total value of the bank';; assets. Under the original act, the bank was empowered to buy and sell New Zealand Government securities, or securities of the Government of. the United Kingdom: but the amount of the securities so held with an unexpired currency of more than three months, it was stipulated, should not at any time within Ihe first four years of the bank's operations exceed an amount equal to twice t he-paid-up capital of the bank and i<s reserve?, and should not sub.sequentlv exceed the paid-up capital and reserves. Under the bill, ur, amendment is made providing that the amount of the securities, with an unexpired currency of more than three months, held'by the bank :hall not at any time exceed three limes the paid-up capital of the bank and its reserves. Another clause provides that a bill of exchange payable outside New Zealand shall be deemed to bear two good signatures if it bears one such signature, and is the subject of an irrevocable undertaking to accept, given to the bank by any person' or firm whose signature to the acceptance of such bill would constitute a good signature. Dealings on Exchange Another amendment is designed to enable the Reserve Bank to deal in exchange in amounts of £ 1000 or more. Section 10 of the original act stipulated £SOOO. The Minister said that while the figure in Australia and South Africa was £SOOO, the volume of business in New Zealand was not so great, so it. was reasonable to ask thai the Reserve Bank should handle amounts down to £ 1000. He understood that no objections would be raised by other financial institutions. The fact that another institution could come in on a competitive basis should have a steadying effect. It would give business people the advantage of the competition of the Reserve Bank. A further provision in the bill stales that if any shareholders' director ceases at any time to be a shareholder of the bank, he shall thereupon vacate office. The date of the first annual meeting of shareholders was originally fixed for this month; but an amendment in the bill provides for postponement of the meeting until any time not later than July 31, 1935. Mr A. J. Stallworthy (Ind., Eden) asked whether it would not be advisable to hold a meeting now to formulate a policy. "A policy has been formulated," said Mr Coates. "Apparently you are not observant." The directors of the bank are cmpowered by another clause in the bill to authorise payment in advance to the Consolidated Fund in respect of profits, if satisfied that there will be a surplus available for distribution at the end of the year. Such action may be taken at the request of the Minister for Finance. Another clause repeals, as from August 1 .next, the Banks Indemnity (Exchange) Act, 1932-33. A voice: There will be no indemnity after August? Mr Coates: Not for the commercial batiks. Mr F. Langstone (Lab., Waimarino): They won't be buying exchange after August 1. Mr Coates: The commercial banks can continue to buy exchange. The

honourable gentleman can do so, too, if he likes. Mr F. Jones (Lab., Dunedin South): Can they vary the rate? Mr Coates: The rate is fixed by the Reserve Bank. Mr J. A. Lee (Lab., Grey Lynn): Is there nothing to validate Mr A. D. Park getting avvav with an extra £4OO. Mr Coates: I thought it was £SOO. Mr Lee: Well £SOO. The Minister did not reply to the point. However, an examination of the bill shows that it contains no such provision. Mr Lee asked how soon the Consolidated Fund should meet the deficits made by the Reserve Bank. Mr R. A. Wright (Ind., Wellington Suburbs') wanted to know what exchange manipulation had cost the Consolidated Fund, also the extra the Government had had to pay in interest. Mr Stallworthy classed the bill as more composite legislation. He said the House was asked to enact another bank indemnity bill while it was in darkness regarding the original indemnity act which the new measure was to repeal. Appointment of Governor The leader of the Opposition (Mr M. J. Savage) asked the Minister for Finance if he would consider a promise he made when the original bill was before the House. He ihen promised to have an amendment prepared for another plan dealing with the appointment of the governor and deputy-governor. The Minister would remember that when the bill was returned to the House it had been completed. Members' hands were tied, and the control of the institution was passed over to a majority of people who had private interests to serve rather than to those who had the public good at heart. He asked the Minister if he would draft an amendment, even at that late stage, providing for the appointment of the governor and the deputy-governor by the Governor-General-in-Council. It was on that promise that the original bill was allowed to go through the House. Mr W. A. Voitch (Ind., Wanganui) said the bill was re-enacting exchange manipulation and bringing it. into the same relation to the Reserve Bank that, it. had with the trading banks. There was also the question of re-enacting compulsory payment of sinking funds by local bodies. He appealed to the Minister not to put the amendment through at the present time. Mr D. G. Sullivan (Lab., Avon) said the House had never had a statement from the Minister regarding the cost of exchange. Mr Forbes: You will have the budget, in a week or two. Mr W. F. Parry (Lab., Auckland Central) asked for the number of private shareholders in the bank at present. He criticised paying the governor of the bank £SOOO a year free of income tax, also the payment of an extra £SOO year to the secretary of the Treasury, while other public servants were not allowed to earn extra money. Exchange Fund Mr Veitch thought there would be considerable consternation at the Minister's announcement that there would be substantial losses made by the Reserve 1. ink as a result of the responsibility of handling the oxchange fund"of the Government, and that 'the losses were to be passed on to the Consolidated Fund. Mr A. S. Richards (Lab., Roskill) said he would also like h> know the position of thi: exchange iunds in London. He said the Government was me servant of banking monopolists. The chairman of committets (Mr S. G. Smith): Order. The hon. member must withdraw that at once. Mr Richards: Well, I will say The chairman: The hon. member must withdraw without saying anything. (Laughter.) Mr Richards said if the chairman could tell him how he could withdraw without saying anything he would do so. However, he would withdraw his remarks. Mr H. T. Armstrong (Lab.. Christchurch East) said he thought the Minister could tell the Government much more il he wanted to. Mr Clyde Carr (Lab., Timaru) said the bill was a rude awakening. He thought there would be a good deal oi trepidation and misgiving when it was known that the taxpaver would have to stand behind the- loss due to exchange manipulation. Mr Stallworthy said he hoped the leader of the Opposition would stick to his point regarding the appointment of the governor and deputygovernor. v lr Coates, replying, said there Wo. .ling for members to concern themselves "with at the present stage, and there was no reason to say or suggest that there was likely to be a loss on the surplus exchange held m London. The cost ot exchange v. us approximately £ 1.650,000, which included the increased cost of transmitting money to London to pay commitments there, also debt services, and 5 per cent, on Treasury Bills that were borrowed from the banks. liank Share Quotations Regardim' statements that there would be consternation throughout the country, Mr Coates said the Reserve Bank shares that morning were quoted at £<i ss. That was an indication of the confidence the people had in the shares. Light thousand shares were made available to the public. Referring to the money to be returned to the commercial banks, Mr Coates said that m Die arrangement he made with those banks who gave Treasury bills for exports sent overseas, the banks asked that when the Reserve Bank was set up the Government should pay them in currency. Those bills would be met by Reserve Bank bills on August 1, or when they became due after that. The Reserve Bank had isused a statement. It fixed New Zealand currency on sterling, both for gold and credit in London for a long period. A voice: Will that mean at least a year? Mr Coates: it might mean two years. I do not, say it will. Mr Coates said he thought 'he statement would be accepted by the commercial banks, business interests, and the people generally. Regarding the point raised by Mr Savage about, the appointment of the governor, Mr Coates said he would endeavour to have the amendment made in another place; but he found if impossible as the constitution of the other place did not allow it. He did not think any good purpose would be served bv making that provision now, am the appointments were for seven years. Parliament could, in the future, if it thought it desirab'e. make the alteration. The bill was read a first time.