RESERVE BANK ACCOUNTS

Press, Volume LXXII, Issue 21807, 12 June 1936, Page 13

RESERVE BANK ACCOUNTS

Ttie report ul the board of directors SiaU-s that a dividend of 5 per cent. OB the paid-up capital of the bank bad paid to rcgisiere- shareholders as OO March 31. 1936. The remaining -sum «f £3012 7s 2d had since been credited to the C.tiolidat.d Fund, making a tola] of £73.012 7s 2d so paid over durieS the year. The profit was again affected very considerably by the low rate at which British Treasury bills continued to sold in London, the average rate ob ained by the bank from that source be ng 11s 2q per cent, per annum. Having regard. however, to the statutory provisions governing the investments grid reserve of the bank, the primary je-ed of a central bank to maintain #\efy liquid position, and the almost «iUre absence of any other more profitable >et suitable means of employing funds, the income of the bank could not but be dependent in a large measure upon the yield obtainable tot.in British Treasury bills. Balance-sheet Changes The report points out that the principal changes in the balance-sheet as compared with the figures at the close vi the previous year are as follows:—An increase of £804.582 10s in bank notes, which more than offset a decrease of shout £310.000 in the total amount of trading banks notes outstanding, thus reflecting an increase in the turnover < f trade which took place during the rear: a decrease of £3.428,333 13s 9d in Stale demand liabiiites, which is accounted f partly by the sale to the Treasury of London funus to provide lor the ripavinent on October 1. 1935. | iA £2.135.800 'sterling) of the Now j 2>aiand 3 per cent. 1935-45 sterling ( lean and the cost of c averting the L ‘ante of £8.000.000 of that loan; and j > increase of £4.530.345 13s 6d in deli rd liabilities. Of the bank’s dealing with these jo ms. :.. • report states that since the «-rt of November *the trading banks' L-lanc have been maintained at a l-.vtl exceeding by about £5.000,000 t:ctr! o: balances during the earlier j■ r? if year. This the i. port .ia.es. was brought about by UU- ai i-y the banks of London funds \j tut Re rve Bank. The minimum U. ances i repaired by statute in rei of ci- rnand and time liabilities it on March 30, 1936. amounted to L ’J 362.772. T.’.-r cir uges in the assets were as i s —.'n gold dealings, 200,000 f.v‘.Tt.gns were sold in London at l;w b-gaming of the year; in sterling exchange. ; terling funds (calculated at : r ,'.e of £ 100 pounds sterling equals £ 12* N.Z. > available for purposes: of la - J?i sr. Bank's statutory reserve mere - <"i riur:ng the year by approximately £2.418.000, the total at the end tf (he year being about £8.000,000 • New Zealand currency) higher than t.oe lowest point touched during the year. Investments decreased on balance by £263.053. The report scU out that the number of shareholders decreased during th- year ho in 6300 to 5699. and the f.vtrage holding rose in consequence from £79 7s 3d to £B7 14s 8d (nominal value 1 .

SUble Exchange Rates la pointing out that there were no Changes in the basic rates of exchange quoted by any of the countries in the •terling group during the last year, the report says that it is of interest to note the reported statement at a Jecent animal meeting of the Bank |br International Settlements to the effect that an area covering more toan 85 per cent, of the world’s trade joyed for a full year the benefit of practically stable exchange rates. n. is noted in the report that the Meservfr Bank’s original discount rate toa» 4 per cent., or 1 per cent, below rate then being charged by toe trading banks for overdrafts. The ***erve Bank’s rate was reduced to 3£ Per cent, in July. 193p, and then to 2\ Per cent, in March, 1936, and it was •ow as low as that of any other ceniral bank m the sterling group, with of the Bank of England. »ncse rale at present was 2 per cent.

Easy Money Conditions In a general survey, the report states —*• to »Pite of an increase in business •*®wty, easy money conditions preZr*— 3 “ the Dominion during the 2J® last financial year. The State *counis were always in funds, and «n«re was therefore no need for the treasury or any other public departto borrow from the Reserve ~*ni£. The trading banks likewise in lamed their balances at above the required by statute, and they * <JO w «re not obliged to ask for ac•ommodatjen. “In addition to the balances of the banks at the Reserve Bank,” we report continues, “the trading 25?** Reserve Bank notes and htnnri *i otn ‘ these three holdings comSf” i orrnm <* their cash reserves in , a l ant l currency. Over and •wove these cash holdings they held WMWtantial amounts of London funds mi respect of their New Zealand b«siand in accordance with Hie gauiwtry provisions, such balances to g yytem to which they were held in Jff” ,or m were available for immeconversion into New Zealand tHTency at any time.

Tradug Banks' Headings *since the passing of the Banking Act. 1935, the totals of FJPw* banks’ holdings of New ZeaGovernment securities in the Dohave been added to 'their Syyy returns. As these securities, amounted to more than gVOOMO at the end of March, could of need be pledged as col*or advances from the Reserve their existence has a bearing f®. “>* financial situation, SP*«gures of the trading banks indi»Wlm» state of liquidity otthe hank* MUffwara of the Dominion throughflP* fear. That that total of ad■■K 2 fk* trading banks at the ■RPMarch was onlyv*ry slightly the corresponding figure a ■Hp may therefore be taken as ■■ipr absence of the demand accommodation on the borrowers. This further indicated by the overdraft rate has never mßmaaL&uin* the present century.

NET PROFIT SHOWN AT £98,012 A YEAR OF EASY MONEY CONDITIONS From Our Parliamentary Reporter] WELLINGTON, June 11. A net pi 'ut uf £98,012 for the year ended March 31, 1936, is shown in the accounts of the Reserve Bank of New Zealand, which were tabled in the House of Representatives by the Minister for Finance, the Hon. Walter Nash, to-day. The profit is £69,158 greater than that shown for the previous period, which was the firsttin the existence of the bank. Of the net profit. £70.000 was paid in advance to the Consolidated Fund, with another amount of £3012 paid in later. The report of the board of directors notes that the year was one of easy money conditions in the Dominion. In spite of the increase' in business activity, the bank was not called on to influence the market in any way, and concentrated on the maintenance of the equilibrium. Ttie low rale of interest on British Treasury bills was stated in the report to be one factor affecting the profits of the bank.

N.Z. FUNDS IN LONDON

THEIR SIGNIFICANCE DISCUSSED “NOT LYING IDLE,” STATES DIRECTORS’ REPORT I From Our Parliamentary Reporter.] WELLINGTON. June 11. “There still appears to be a lack of understanding in some quarters as to the nature and significance of London funds at present held on account of New Zealand.” states the board of directors of the Reserve Bank of New Zealand in the annual report presented to the House of Representatives to-day by the Minister for Finance (the Hon. W. Nash). To regard them as lying Idle is obviously incorrect in various respects.” the report st:.tc “In the case of a country like New Zealand, which is on a sterling exchange standard, London funds serve the same purpose as do the gold reserves of •countries on the gold standard—that is, they constitute the foundation upon which the credit structure of the Dominion rests, in addition to providing a reserve available for meeting commitments overseas in case of need. “Moreover, the full equivalent of London funds in New Zealand currency has been made available in the form of purchasing power ' the hands of the public in the Dominion, and until it is required for expenditure overseas, this purchasing power is available for use within the Dominion.” Discussing the ratio of gold to "sight liabilities,” the board explains that the Reserve Bank’s ratio stood at 98.46 per cent, at the end of the financial year. The lowest point touched during the year was 96.56 per cent. ‘ A table was quoted showing that the highest point reached in Switzerland in 1935 was 96 per cent., in the Netherlands 81 per cent., in the United States 75 per cent., and in France 81 per cent; but whereas the reserves shown for these gold countries were entirely held in the form of gold, which is unproductive, the bulk of twri reserve of the Reserve Bank is revenue-producing, the report stated. It had to be * remembered that the Dominion's sterling reserves accumulated at an abnormal rate during 1933-34, and were therefore more than ordinarily liable to be drawn upon in respect of deferred purchases overseas. Moreover, the Reserve Bank's figures being relatively small, the effect per million pound produced upon the ratio by the replacement of sterling assets by assets in New Zealand would be relatively great.

| “In the easy money conditions which I the board did not consider that any useful purpose would have oeen served by an expansion of central bank credit in the Dominion to any appreciable extent, nor did there appear to be any need for contraction. The Reserve Bank, therefore, aimed at the maintenance cf a state of equilibrium rather than the attainment of any other object by monetary means. Banker to Banks “In all its actions, the board has been guided by its conception of two primary functions of the Reserve Bank as a central bank. In the first place, as banker to the State, it has armed at conducting the affairs of the bank in such a manner as to enable it to give as much assistance as is practicable to the Government of the j day in putting its monetary and financial policy into operation; and second, as banker to the trading banks and custodian of the statutory cash reserves, it has within the limits of its powers endeavoured to render to them all 'reasonable support in the conduct of their normal business, and also to safeguard their cash reserves entrusted to, its care. “In the exercise of these functions, and in tendering any advice to the Government on monetary and financial matters, it is the constant endeavour of the board to act in a spirit of complete detachment from any sectional interests of any kind whatever, and to regard all such questions entirely from the point of view cf what is most likely to promote the welfare of the Dominion as a whole." The balance-sheet of the Reserve Bank as at March 31 is as follows: Liabilities March 31. Alteration 1936. from 1935. £ £

A note on the balance-sheet states that holdings of sterling have been converted into New Zealand currency at the rate of £IOO sterling equals £124 New Zealand.

Paid-up capital General reserve fund Bank notes Demand liabilities— State Banks Other Other liabilities Profit and loss 500,000 1.000,000 10,187,304 8,794,968 9,049,393 79,919 62,991 28,012 + 804,582 — 3,423,333 + 4.530,256 + 40,308 + 19,847 — 842 Totals 29,702,588 +1,965,909 Assets Gold (at face value) Sterling exchange .. Subsidiary coin Investments Other assets 2.801,733 24,876,605 201,126 1,801.118 22,006 - 199,998 + 2,418,588 + 24,422 - 268,653 - 8,450 Totals 29,702.588 +1,965,909