Central Reserve Bank

Dominion, Volume 27, Issue 4, 29 September 1933, Page 13

Central Reserve Bank

-gj r _The Rt. Hon. G. W. Forbes has returned and slates that the “necessity of a central bank as part of the financial machinery of a country admitted not find any very serious opposition to to that opinion; but he will find a very widespread and intense opposition to the kind of Central Bank which his Minister of Finance, Mr Coates, is endeavouring to inflict on the people of New Zealand —a bank which will place the control of currency and credit in the hands of international financiers. ’ A State National Credit Board with all the powers of a central bank, freed entirely from political control and influence, on tie lines of the Commonwealth Bank oil Australia, is the class of central currency and credit control or which this country is in urgent need. One of the great disabilities from which the country is now suffering is too much control of our national finance from abroad. It is not more of this control but much less of it that is required. If these central reserve banks, under private control are such admirable institutions, why is it that they have failed dismally to safeguard the financial position- in those countries where thev have been established for many rears? The United States of America has more of reserve banks than any other nation and yet has suffered fi n “" cially to a great er extent than any other country. The Bank of England played anything but « saving part in Great Britain’s financial position. In fact, the Bank of England did more to cripple Britain than t» help it by reason of the fact that it was chiefly responsible for the deflation of currency. When, in 1925, the Bank of England pursuaded the British Government to return to the gold standard and at the same time hand over to the bank control of state cur-rency—Bradburjs-rit is stated tha- the Bank of England took steps to reduce currency (purchasing " y £800,900.000. In May. 1920, the representatives of twelve Federal Reserve Banks met at Washington and adv used deflation of currency and by 1933 currency had been, reduced by 5,504,122,000 d °When it is realised that these are reductions in daily purchasing power, not in annual purchasing .power, and when these figures are multiplied by 300, assuming that the pound changes hands only once a day, it will readily be seen what an enormous reduction m purchasing power resulted; and as the amount of purchasing power determines the demand for, and, . therefore, the prices of commodities it is easily seen how slumps occur. _ , . The South African Reserve Bank, the oniv one established in a British Dominion, has been a regrettable failure and a great burden upon the people, inis bank lost £1,500,000 of its capital in speculating in overseas currency, and to recoup its losses charged a margin of 5 per cent, to 7 per cent, on London teiegrapli exchanges, this being a direct tax on the people and an excessive charge as shown bv the fact that other banks performed the same service for 4 per cent. Canada has wisely refused to accept the advice of Sir Otto Neimeyer and will have none of the privately controlled Central Batik. Sweden. Egypt, and Malay States hare established state control of currency and credit and found that course much more satisfactory than Central Banks of the type suggested Australia where the Comonwealth State Bank has been in existence for many years nil shades of public opinion, including trading banks, are in accord in crediting thnt bank with having been of the greatest possible assistance to Australia in its financial difficulties. On the other hand we find President Roosevelt warning the reserve banks in the United States of America that if they do not mend their ways drastic action will follow. If a reserve bank is necessary let us wisely follow the model of those found to have been most beneficial to their respective countries, and not the model of those which have been tried and found wanting.—l am. etc. C. R. C. ROBIESON. Wellington. September 21.