The press SATURDAY, JUNE 13, 1936. The Reserve Bank

Press, Volume LXXII, Issue 21808, 13 June 1936, Page 14

The pr ess SATURDAY, JUNE 13, 1936. The Reserve Bank

This year the annual report and statement of accounts of the Reserve Bank of New Zealand have been presented to Parliament and not to a meeting of shareholders. The change, brought about by the Reserve Bank Amendment Act, has an importance which has not hitherto been remarked. Under the original act the report and the accounts had to be presented by the governor and the directors in person at a meeting of shareholders; and it was open to any of the 6000 shareholders to attend the meeting and ask questions. The governor of the Reserve Bank cannot now be questioned about the bank’s affairs; his report is presented in Parliament by the Minister for Finance; and whether or not it is discussed adequately will depend on the Government’s wishes. Though at present there can be no motive for stifling discussion, it is not difficult to envisage circumstances in which a government might find it expedient to prevent members of the House from finding out too much about the bank’s position. In keeping with the precedent established last year, the governor of the bank has presented a balance-sheet and profit-and-loss account for 1935-36 which reveal next to nothing. The net profit this year is shown at £98,012, compared with £29,000 last year; and it is apologetically suggested that the continued low rate of profit is partly due to the low rate on British Treasury bills, in which most of the bank’s sterling funds are invested. There are, it may be suspected, other reasons for the smallness of the net profit. The only important change revealed by the balance-sheet is a decrease of about £3,400,000 in demand liabilities, to the State, accounted for by the sale of sterling funds to the Government to cover the cost of the redemption and conversion of loans maturing in London. This is almost balanced by an increase in demand liabilities to the trading banks brought about by the purchase from them of sterling funds. The position revealed by the balance-sheet is one of great strength; and probably the method adopted of valuing assets is deliberately conservative. The report covering the bank’s activities for the year reads like excerpts from an elementary treatise on the practice of central banking. For more than a year the bank has been severely criticised for making no move towards the establishment of a bill market. Apart from the obvious advantages of this method of finance, there can be no effective control of credit in New Zealand until a bill market has been created. The board acknowledges this criticism for the first time by including in its report a short essay on commercial bills and their uses, ending with an expression of opinion that “ all practical steps should be taken ” to develop a bill market in New Zealand. What fie public will want to know is why the bank does not take its own advice. There is a further essay on that evergreen topic, the London funds, an oblique reference to the desirability of stable exchange rates, and a guarded warning that Treasury bills should be issued only “in an- “ ticipation of revenue or other receipts.” The one 'touch of humour —or perhaps it is something else—in a dull document is the reference to the reduction of the discount rate by stages from 4 per cent, to 2£ per cent. The report solemnly notes that this rate “is now as low “as that of any other central bank in the “sterling area, with the exception of The Bank “of England.” It remains to add that, as the bank has not discounted a single bill, it does not much matter whether the : te is 2 per cent, or 200 per cent.