THE RESERVE BANK AND LONDON FUNDS

Press, Volume LXX, Issue 21244, 16 August 1934, Page 9

THE RESERVE BANK AND LONDON FUNDS

TO Til!'. EDITOR OF TUT; I'MSStt. Sir, —I suppose your correspondent "Puzzled" will not cease to ask his absurd question until it is answered in words of one syllable and letters six inches lull. This is not n. job for Mr Coates or for Professor Toeker; they have been addressing themselves to intelligent; electors and readers. I take upon myself the part of instructor, as it were, in a school for retardates. "Puzzled" wants to know how the Reserve Bank, with a tiny capital, has been able to purchase the £23,000,000 of London sterling from the banks. His own answer is that the bank has drawn a cheque upon itself—creating its own credit to the required amount This answer has every merit but that of truth. The bank did not need to buy the London funds. The Government had bought them from tile trading banks by the issue of Treasury Bills in New Zealand. It had, therefore, a London asset and an equivalent New Zealand liability. Uolh were taken over by Hie Reserve Hank: and that is all that, •■f'u/./lcd" needs to know.— Yours, etc.. OKI-111.1 US. .August, i:>. 19' it.