TREASURY BILL SCHEME

Press, Volume XCI, Issue 27664, 21 May 1955, Page 8

TREASURY BILL SCHEME

Plan For Short-Term Money Market APPROVAL GIVEN BY MR WATTS (New Zealand Press Association) WELLINGTON, May 20. A plan for a short-term money market in Treasury bills had already received the approval of the Minister of Finance (Mr J. T. Watts), said the Governor of the Reserve Bank (Mr E. C. Fussell), in evidence before the Monetary Commission today. Mr Fussell said the proposal was sufficiently far advanced to be put into operation. It would meet a worthwhile need in the cojnmunity. The establishment of a short-term Treasury bill market in New Zealand would be a significant development, because it was the birth of a new aspect of monetary policy, and marked New Zealand’s growing stature as an economic and financial unit, he said. He was convinced that such a market would be a boon to the community, and advantageous to the financial structure and the Government. Mr Fussell disclosed details of the scheme during his examination by Mr G. G. G. Watson, a member of the commission. Asked whether the Treasury bills so offered would be for only three months, or for longer periods for the convenience of would-be investors, such as six months. Mr Fussell said that, so far, only the three months’ period had been considered. However, full consideration would be given to a longer period, if there was the public demand for it. If the holder of a bill wished to have his money back before the bill matured, arrangements would be made accordingly, said Mr Fussell. The investor would receive interest only for the period in which he held the bill. No penalty would be charged in such cases, at least in the earlier years of the scheme. Asked why the short-term market had not been established by, now, Mr Fussell said that it was being postponed for the present because the Reserve Bank had been “pounding” the banks heavily with the reserve ratio system. It would not be fair for the banks to have to sustain an additional strain at this juncture, if the offer of the bills proved to be popular Mr Fussell said the best time to introduce the Treasury bill market would be when the trading banks could increase their fixed deposit interest rates. To make the bills attractive to the public, it would be necessary to offer a rate of possibly li per cent. With fixed deposits as they were, there would be a danger at present of a switch from fixed deposits to Treasury bills.