LONDON SURPLUS FUNDS

Press, Volume LXXI, Issue 21533, 24 July 1935, Page 18

LONDON SURPLUS FUNDS

TO TUB BDITOB On TBS PRB33. r Sir,—The Hon. Adam Hamilton comfclalns that the relationship of the Reserve Bank and the London surplus funds remains a mystery, despite the fcxplanations. once more how JTery proper the whole proceeding was, fce Acting-Minister for Finance only nfirms the suspicion that the Re"jserve Bank came into an asset of jßbout £22,000,000 without parting with He unconsciously makes {clear that the farmers' export surplus nfunds in London became duplicated, Stbis amount remaining in London, awhile there is an equivalent in money for credit in New Zealand. The only was that due to the exchange. The orthodox expositors always try to leave us with the impression that it was not a real duplication, Ithe amount in London being the substance and that in New Zealand being the shadow, or merely a claim in iNew Zealand on the London surplus Sn'sterling, the only real "asset." Let Tua stick to that word "asset" and we shall get some real light on the question. Mr Hamilton himself dispels this .illusion. He tells us that the sterling [surplus in London became the profcjperty of the trading banks, and these nfunds became their "assets." The ufarmers who exported the material Fwealth represented by the London {funds were paid by the trading banks Pby an equivalent credit in their banking accounts in New Zealand. Had pthe farmers been informed at the time khat this credit was not to be regarded fas a real "asset" of theirs in New Zealand, there would have been a rod in Epickle for someone. Certainly .they Bwere assets, the result of their sales febroad. Next, the Government bought mhe London "asset" from the trading pbanks with New Zealand treasury iMUs (a form of commitment of the credit, without question). The itrpasury bills now became "assets" of ithe trading banks in New Zealand just feu the surplus funds had now,become Government "assets" in London. The Bank was then created, and [it handed over to the Government a fheque upon itself (having only !ie500,000 capital and £1,000,000 of Government reserve), and this big London surplus then became an "asset" in (turn of the Reserve Bank (vide weekly Jyeport). The Government now had pthe equivalent in a complementary basset" In the form of credit or notes ori the Reserve Bank. This "asset" was next transferred to the trading [banks for the treasury bills, which Bwere/cancelled out. So the position snow Is that the Reserve Bank has an rasset" of the surplus millions in Lonilon, and the trading banks have an fjasset" of similar millions in New Kealand in credit at the Reserve Bank, mow, how can we escape from the two jrassets" where only one originally ytexisted? That the one is as good as pthe other the Acting-Minister for ij'inance made plain, for he says that jftha trading banks, or whoever may town credit at the Reserve Bank at s»ny time, have a statutory right to fecqulre sterling assets in exchange for »hem." There is no hint that this •would constitute swapping the subStance for the shadow. Anybody would be equally well satisfied with either as the equivalent of money. If becomes duplicated as ''assets" in two different places, it tnust be obvious that in this case the {Reserve Bank came into possession of tone of these without reducing its tenpital one penny. Its return shows (that. There is nothing in this letter Jwirich cannot be corroborated in the frtatement made by the Acting-Minis-ter for Finance, but I doubt if he ftvished anyone to read it in any such rialytical way.—Yours, etc., VINCIT VERITAS, ffuly 19, 1935.

*o ot» sdito» or rut vaiss. f' Sir,—-The Hon. A. Hamilton, in tryteg to prove that the issue of money fcy the Reserve Bank to buy the sterling exchange, was not fiduciary, ha 3 had recourse to the fiction of the Starling exchange standard. Thus he arrives at the conclusion that the teredlts Issued in New Zealand represent reel assets derived from the sale of Hew Zealand exports. But the sterling funds, still in London, represent *hese exports; therefore we have two issues of money, one in Great Britain, IHerther ip New Zealand, both reprei B«ntto* the same goods. It out-Doug-Jases Dbuglaa. Th*«t«3mg exchange standard, like; its parent, the infamous gold stan- &»<£!» ,*» impostor, by comparison feaimtew. however. See how that Iwteked iltdoer, the gold standard, is eveb now preventing the urgently »e«J«J *tabfiiaatl<»i of exchanges. Congffi sft£ <StAp Cumber of CansmeWe.lhe following:--"The liafeiHty for the redemption of either notes or bank deposits is to find ster{SrftSdiTta exchange for New Zealand funds." Now who wants sterling In exchange for his New Zealand HeHe*** Bank note? Only those who require to make payments in Great Britain The holder of a note wants to fee abta to turn It into goods or serjfßW U* New Zealand. The notes {

issued are a demand on the goods and services of the people of New Zealand, and are issued with a promise to pay, and, of course, in the same kind, goods and services. Is not this perfectly clear? Then why this pretence of a sterling exchange standard? — Yours, etc., J.M.W. July IS, 1935,