CENTRAL BANK

Dominion, Volume 26, Issue 28, 27 October 1932, Page 8

CENTRAL BANK

Case For and Against NEW ZEALAND ACTION Dr. Belshaw for Delay In the opinion of Professor H. Belshaw, of Auckland University College, New Zealand should benefit in the long run from the setting up of a central bank. But he expressed the view In his address to the Dominion executive of the Farmers’ Union yesterday that it would be better |f the establishment of such a central bank were delayed until economic conditions had become more stable. New Zealand might theu have the benefit of the world’s experience, and would avoid the danger of crystallising a system that might become damaging to prosperity under different circumstances. The case for a central bank, he said, rested fundamentally upon the need for having a single responsible authority to control credit and currency in the interests of the community. Commercial banks, on the other hand, were profit-making institutions. Moreover, even if the commercial banks adopted a policy desirable from the community point of view, they were more likely to be subject to strong public criticism, and to hesitate to put such a policy into effect. A central bank was free from criticism. Further, the interests and viewpoints of the commercial banks might sometimes conflict, and result eventually in a compromise. A single central institution would not be faced with the same difficulty, besides being less likely to exercise direct or Indirect pressure on the Government, as well as being more willing to put into effect the policy dictated by the Government. The central bank had an undivided loyalty. Case Against Establishment. The main limitations, however, on the power and influence of a central bank in New Zealand were, firstly, the absence of a short-term money market similar to that which existed in the financial centres; and, secondly, the difficulty of obtaining sufficiently experienced governors. Nevertheless, Professor Belshaw believed that In the long run New Zealand should benefit from the setting up of a central bank. His main reasons tor suggesting delay were, in the first place, that conditions were changing so rapidly that views on the constitution and appropriate policy and technique of central banks were still in a state of flux. People's views were changing as a result of the Impact of world conditions, and a delay would enable New Zealand to profit from the experience of the rest of the world. Next it seemed very likely that the policy of a central bank would be very largely dictated by the Bank of England. It was more than probable, he-said, that the first governor would be the nominee of the Bank of England, because New Zealand had no one with the experience necessary to direct a central bank. At a time of great monetary uncertainty, New Zealand should not be prepared to sacrifice her monetary policy to the Bank of England. “The position is more serious,” he said, “because it would appear that the City of London does not appreciate the problems of New Zealand. The danger is all the more real because the proposal of the Niemeyer Report is to tie our currency to sterling.” Some Suggestions. If the Government decided to establish a central bank, Professor Belshaw said, he would suggest first of all that the bank should be recognised as a national Institution and the profits should be strictly limited. Secondly, while detailed Parliamentary interference should be avoided, the ultimate authority of Parliament on monetary and banking policy should be recognised. At the present time, in his opinion, there was no doubt that the stabilisation of prices was more important than stabilisation of the exchange, and it would be a grave error to tie currency to sterling. The central bank, moreover, should be subject to free public criticism and the Government should be directly represented on the directorate. In concluding, Professor Belshaw suggested that if the Government decided to establish a central bank it should submit a draft of the constitution to independent authorities outside New Zealand, other than Sir Otto Niemeyer, Professor Gregory, or any of those connected with the Bank of England. It should obtain the opinions of such authorities and give them its earnest consideration. He thought that Mr. J. M, Keynes was one to whom such a draft might be profitably submitted. High Exchange Kate. Among the many questions that were put to Professor Belshaw at the end of his lecture was one which inquired about the views held by other economists in N£w Zealand on the exchange quesiton. Professor Belshaw said that at least six economists in New Zealand had declared themselves in favour of high exchange. One economist had not declared himself, and of the other three, one of them, he believed, was in favour of a low rate, and the other two, so far as he knew, had not expressed their opinions. There was, therefore, a substantial majority, he said, in favour of high exchange.