The Banks and Gold

Dominion, Volume 26, Issue 67, 12 December 1932, Page 11

The Banks and Gold

Sir. —The Central Bank proposal and the resultant controversy on the ownership of the gold reserve in the banks, go to show how little the systems relating to distribution are understood. Surely the gold reserve in the banks belongs to the cheque credit system, and should be controlled by the banks as operators. ■Should that gold, or its legal tender equivalent, be taken away from the banks, the whole cheque credit system would collapse,, for no firm or business run by private enterprise would be able to draw legal tender for wages. Those who say that gold belong to the depositors should know that cheque credit in the Dominion far exceed the gold_m reserve; there are about £40,000,090 deposits in the Post Office alone. Who would be 'the lucky depositors to get the S °Tb'e banks say the gold belongs to them. If the Government repealed, or let expire the legislation making bank notes legal tender, and removed the restriction from the circulation of gold currency, how would the banks meet a wage cheque, other than with gold currency? purely they would honour a demand on. their promise to pay notes for sterling? The Government wish to buy the gold for their Central Reserve Bank Kh«ne. If they bought the gold with gold, they would put more gold iu the banks than the gold they took out. If the Government intend to buy it with Treasury notes, why not leave the gold where it is, aud put the Treasury notes in their Central Bank, both being legal tender ? The only function a Central Reserve Bank can perform is to supply the Government with legal tender from the people’s credit to meet extraordinary deinands that taxation cannot supply at the moment. So if the Treasury Department changed its name to Central Reserve .Bank, everyone should be satisncd. 1 am ’ etC ” rational. Wellington, December S.

Sir,—ln reference to Mr. Beggs’ contention regarding the ownership of the rold in the hands of the banks I would like to offer the following comments;— Obviously when a customer of a bank has lodged coined gold to the credit of h s current account one of two thin e o must have happened. Either the Jaah has brought the gold coins outnght from the customer in exchange tor an agreed-upon amount of credit in his current. account or the bank has made its customer a loan of £1 (K«w Zealand) for each sovereign lodged. Assuming that the transaction can be regarded as a loan, and that the customer is entitled to a return of his security _oo repayment of that loan, the bauks Mtm.d, as a matter of common practice, be entitled to charge their customer «u rrei3 !; rate of interest until the loan wm, repaid. Obviously the 'banks could not afford to make these advances free of interest as they are required to pay income tax on all the gold they hold. At least 95 per cent, of the gold now held bv the banks has remained undkr turbed'in their hands for the past IS vrora, and each £l9O of loan, at average rate of 6 per cent compound interest, would have umounted to ±2Bl /J-V/-. . As Mr. Begg’s sense of justice is -o outraged by the alleged robbery by roe banks from the man in the street, oje can onlv conclude that he will be. jmit as scrupulous in paying the banks’ mterest in full when he calls to redeem the -old which he may have deposited with them from time to r <~ Palmerston North, December 9. Sir—There has been no mention of the gold purchased by the banks from mining companies and. diggers. Mr. Begg argue that this'flocs not beloB„ to these banks, but to those who sold »t to them? —I am, etc., \ P.II. Wellington, December 9.