Central Reserve Bank

Dominion, Volume 26, Issue 47, 18 November 1932, Page 13

Central Reserve Bank

Sir, —Mr. E. O’Sullivan, of Melbourne, general manager of the E.S. and A. Bank, is reported as having approved, as a wise measure, the establishment of a central reserve bank in New Zealand. It can well be recognised that such a bank, if properly constituted,, soundly organised, and wisely conducted, would be in the interests of this country and its banking structure, notwithstanding that many of the functions which would otherwise be under the care of a central bank have in the past been ably carried out by the Associated Banks of New Zealand. It is because of the possibility—which indeed is not very remote —of a central reserve bank of New Zealand becoming in time an accomplished fact, that it is particularly important at present to avoid ill-considered, financial and currency measures which would shackle and hamper such a hank from the very outThe public are aware of the Government’s intention, as reported in the Press, to introduce central banking legislation this session. The public are doubtless also aware that the proposal to increase the exchange rate artificially has not lost its advocates. Which, is it to be—an artificially high rate or a central bank with a true rate of exchange and a sound currency? Obviously we cannot have both.. It is well known that a central bank, if founded here would and should be ultimately committed (that is, when conditions warrant) to restoring the exchanges to approximate par with sterling, and the further we drift from sterling the longer and more arduous is the road back to sterling. . • . Just how parity with sterling is. to ■be reached, and at the same time prices be stabilised at a reasonable level, would be a matter for the central bank; but in the meantime, while preparations, are in train, it would be most unwise to increase the problems to be met by the central reserve bank, and diminish its effectiveness by allowing our currency to be depreciated any further in terms of sterling. If this is realised, it cannot fail, to be appreciated that the banking policy of this country not to quote an artificial rate of exchange above that determined by the trading position is sound and wise, not only as far as paving the way for a central bank is concerned, but in other directions! as well. —I am. etc., RESPICE FINEM. Wellington, November 17.