CENTRAL BANK

Dominion, Volume 27, Issue 17, 14 October 1933, Page 6

CENTRAL BANK

Gold Holdings Problem

TRADING BANKS’ STAND

Statement by Chairman

The question of the gold coin and bullion held by the trading banks in New Zealand is one that has figured prominently in the discussions that have taken place regarding the proposed Central Reserve Bank. In response to inquiries from a representative of “The Dominion,” the chairman of the Associated Banks, Mr. J. T. Grose, yesterday made an official statement regaridng the banks’ attitude on the matter. “When the Reserve Bank Bill was first mooted,” said Mr. Grose, “the Prime Minister agreed that the proposed Bill should be discussed with the banks, who, though some of them were opposed to a Central Bank, had agreed to assist the Government in seeing that the Bill was drafted on the best possible lines. “As a result of this, small committees were appointed by the Government and the banks, who went through a preliminary Bill in detail and made recommendations to the Government, and though on one or two. major points agreement could not be reached, the Bill was drafted.

“Following that, the heads of all the banks were invited to meet Cabinet, and the whole matter was again discussed, and a good deal of discussion took place in respect of the true value of the gold held by the banks. The gold is held largely against their note issue, but also substantially as a reserve in the ordinary course of their business, and quite apart from the requirements of their note issue. , Property of the Banks,

“The banks held that the gold was their property, and that the true value of it of course was theirs also. As is recognised at law, all gold and silver paid into a bank becomes the absolute property of the bank, and those who pay it in become depositors, and have a claim against the banks as their debtors. Conversely, the deposit of gold or other currency by the customer might reduce his overdraft and so reduce the bank’s claim as creditor against the customer as debtor. No satisfactory conclusion between the Government and the banks was then arrived at in respect of this matter. “Many meetings between the heads or representatives of the banks and the Finance Minister and others followed, and in the end, though the banks did not in any way depart from their claim that the true value of the gold held by them belonged to them, it was agreed that a clause should be put into the Bill under which the contention of the banks was set out; and it was also set out in the Bill that, having regard to all the circumstances, it might be contended that the Reserve Bank or the Government would be equitably entitled to a proportion of such value; and the clause provided that, on realisation, the value of any gold coin transferred to the Reserve Bank by any bank shall be credited to that bank or apportioned between that bank and the Re--serve Bank, as may be agreed between ■ the governor of the Reserve Bank and the said bank.’

“Failing that, the question was to be determined by others mutually agreed on by the bank concerned and the governor of the Reserve Bank; and. failing that, by a special tribunal comprising the Chief Justice of New Zealand and. two other persons. This clautf was arrived at. as stated, after very many consultations and discussions, and was incorporated in the Bill. The Bill was introduced into Parliament last session. buFdid not get beyond the first reading. The Amended Bill. “The banks now learn that there have been deliberations by the members of the’ Coalition Government, and that an amended Bill will be introduced shortly. It has been stated on behalf of the Government that even if any possible changes should prove necessary and desirable in the Bill, it would remain substantially as first presented, so far as general principles are concerned; and also that there were to be no major changes in the method ’of working of the Reserve Bank. This would seem to dispose of reports that have circulated recently, that it was intended to have a majority of Govern-ment-appointed directors, or even that the Government should provide the capital for the bank in lieu of subscription by private shareholders. “As stated above, the banks hold that their gold, with its true value, is their property ; and it is not generally known tliat a great deal of the gold coin imported into New Zealand by the banks and held by them has never been in circulation, but has been retained in the banks’ safes. It may also be explained' that a good deal of the gold thus held has been received in exchange for bullion purchased in Ne.w Zealand by the banks. There is another factor. too, that is not generally known, and that is that until recent years settlements of exchanges between Australia and New Zealand were frequently made in gold.” tiiiiiiiiiiißiii ii iii iiiiitiiißiiaii mi itiutriin i liiiiiiiitiiniiiii