PARLIAMENT IN SESSION

Dominion, Volume 27, Issue 34, 3 November 1933, Page 12

PARLIAMENT IN SESSION

Continuation of Debate on Reserve Bank Bill GOOD PROGRESS IN COMMITTEE STAGE Alteration in Method of Appointing Executive Officers Although there was almost unanimous agreement on the clause in the Reserve Bank of New Zealand Bill.under which gold reserves will be taken over from the trading banks by the proposed Reserve Bank at their book value instead of at the current market price, considerable discussion on this provision took place in the House of Representatives yesterday. An unsuccessful effort was made by Mr. R. A. Wright (Ind., Wellington Suburbs) to reinsert by way of amendment the arbitration clause which appeared in the original Bill introduced last session. This was rejected by 56 votes to five, Mr. Wright receiving the support of Mr. J. Hargest (Govt.; Invercargill), Hon. W. Downie Stewart (Govt., Dunedin West), Mr. H. Atmore (Ind.. Nelson), and Mt. C. A. Wilkinson (Ind., Egmont). During the afternoon sitting Mr. Stewart fjipoke for the first time since he resumed his seat in the House on Tuesday after his absence abroad. Mr. Stewart said that when he had introduced the Reserve Bank Bill last year he had made provision for a tribunal in the event of disagreement over the taking over of gold, and if thefbanks were dissatisfied with the provisions of the present Bill it was very much their own fault because they had delayed the Bill he had introduced'. Friendly co-operation of the trading banks was to a large degree essential to the success of a Reserve Bank.

The Minister of Finance, Rt. Hon. J. G. Coates, said that should it be found that the banks had a case that had not so fatbeen made or represented and .that Parliament had not dealt with them fairly in respect to .the gold they held, the matter could be dealt with later.

Good progress was made during the evening with the remaining clauses in the Bill, and by 11 o’clock all clauses had been agreed to with the exception of that relating to the appointment of the governor and deputy-governor. The proposal in the Bill, that these two officers, after their first terms of office, should be appointed by the shareholders with the approval of the Governor-General-in-Council, gave rise to a considerable division of opinion. ■Mr. Coates agreed to amend the clause whereby the appointments would be made by the Governor-General-in-Council on the recommendation of the board of directors. * ■

RESERVE BANK Committee Stage of Bill '..’■, ’ / ’ 1 ' HON. W. D. STEWART’S VIEW Support for Legislation The committee stage of the Reserve Bank of New ‘Zealand Bill in the House of Representatives yesterday afternoon afforded the Hon. W. Downie Stewart (Govt, Dunedin West) his first opportunity to address the House since his reurn from abroad. The clause under discussion was that which defines the power of the bank to purchase shares in other banks. The Leader of the Opposition, Mr. M. J. Savage, had moved an amendment taking away from . the bank the right to purchase shares in the Bank of International Settle- ■ ments. “I think too much importance* is being attached to the possible dangers arising under this clause,” said Mr. Stewart. Two objections had been raised by Captain H. M. Rushworth, member for Bay of Islands. The first was t that if the Central Bank took shares' in the Bank of International Settlements, New Zealand would be handing over power to outside people. The second objection was that there was no . immediate necessity to use the power ! granted in the, clause, and that there would be tlmq enough to take it when the wisdom of it became apparent. Wiser to Have a Voice. “As to the first objection,” said Mr. Stewart, “so far from handing over power to an outside body, I should suppose the opposite would be the effect. We would be taking shares in the Bank of International Settlements and would require a voice in its'policy. If it is going to open up'questions of international financial policy, surely it is much wiser for us to have a voice than not? I gather from the remarks of the member for Auckland Suburbs, that his view is that any interest taken outside New Zealand in monetary affairs is a mistake, and that we ought to work out our own salvation. I always! understood that those who hold that the depression is partly caused by international monetary policy are agreed that only an international monetary policy can remove those causes, witli any effectiveness at all.” J, Mr. E. J. Howard (Lab., Christchurch South): We don’t agree with that. Mr. .Stewart: I think the hon. member will admit that is a very widelyheld view. We cannot get out of our difficulties unless there is co-operation with other countries. Take our own case, for instance. Everybody is agreed that if we are to be saved by a rise in prices witli the fact that practically the whole, or, at any rate, the greater part of our internal credit is linked up with world prices, then surely it is of some importance for us to have some say in the policy of an international body that is trying to operate ln such a way as to get the world out of the depression*. Mr. J. A. Lee (Lab., Grey Lynn): How are we going to have a say? Mr. Stewart: We would have a better chance of having a say if we had some shares than if we had no interest in it at all. As to the other objection that the power to purchase shares in the Bank of International Settlements is not immediately required. Sir Otto Niemeyer points out that is not a matter of immediate practical politics, but that a similar clause is being put into the constitution of all central banks because the Bank of International Settlements is becoming of more and more importance. Unless a world policy can be evolved on currency and similar problems, it looks a long way to go before we can restore ourselves individually, but in so far as It is anticipating a possible need or possible decision, this Parliament is frequently passing legislation on the same analogy.” Faith in Directors. Mr. Stewart said that he remembered a few years ago- putting through a clause which provided that goods coming in by aeroplane should be liable to duty, and the House thought it was rather far-fetched, but one did nor know how long it might be before that was needed. It was just as well to have the clause there so that goods could not be rushed in before they had

time to legislate. There wore man/ other similar instances. “I think the directors of this bank,” said Mr. Stewart, “would bo wise enough to see whether or not. it was in -New Zealand’s interest to have an interest in this bank.” Mr. Savage claimed that New Zealand should not be tied to any monetary system overseas. He suggested that they should put the Dominion’s house in order before they connected up with external monetary systems. That was the object of his amendment Prime Minister’s View. The Prime Minister, Rt. Hon. G. W. Forbes, said that the Bank of International .Settlements had been set up to enable the financial arrangements of ' the League of Nations to be given effect to. It was not a bank in the ordinary sense by any means. ■'The bank did not affect any question of currency. Mr. R. McKeen (Lab., Wellington South) said it would be far better for the New Zealand Government to pay a direct contribution to the Bank of International Settlements than to direct the Reserve Bank to take shares. Captain H. M. Rusliworfh (Ind!, Bay of Islands) said that the Bank of International Settlements could in the event of a dispute “assist those countries in the right.” That was an important matter, as one did not know who was going to declare what was right or wrong. The amendment was rejected by 43 votes to 26. OWNERSHIP OF GOLD Labour, Supports Minister ■ DIVISION OF OPINION A question that is engaging much public interest, the ownership of profits arising from gold in bank reserves, was the subject of an interesting debate when the clause in the Bill dealing with this was being considered. According to the Bill such profits are to be transferred to the public account. Mr. R. A. Wright (Govt., Wellington Suburbs) moved to amend this by substituting a corresponding clause in last year’s Bill, which provided that profits from gold reserves should either be credited to the bank or apportioned between the bank and the general reserve fund of the Reserve Bank. If this apportionment could not be agreed upon, a special tribunal was to be set up. Case for the Banks. Mr. Wright said that that clause appeared to him to be a fair method of settling the difference between the present Bill and the commercial banks. If agreement could not be reached on tho question, It was to be decided by a special tribunal consisting of the Chief Justice and two others, one-appointed by the Government and one by the banks concerned. That, he thought, was a fair method of settling the matter. He had no special sympathy for the banks. It mlgljt be that they did not deserve any; he did not know. Although the banks might be generally condemned, his defence of them in the present instance was on' the ground of natural justice. Ho would defend anyone, whether they had much or little, if the principle of natural justice demanded It. In his opinion, the clause in the Bill was contrary to the principle of natural justice, said Mr. Wright. The Bank of New South Wales had shown that it had imported £387,000 worth of gold. He had no special brief for that particular bank; for it was well known that it was behind the exchange ramp. At the same time surely the gold it had imported belonged to it. He would not stand for the sort of thing contemplated in the Bill. Whether it was popular or not he did not care labour’s Attitude. The Leader of the Opposition, Mr. M. J. Savage, said this was one of the few clauses in the Bill that one could find justification for. Anyone who knew anything about the recent history of •banking in Now Zealand must know that these gold reserves had been protected by law. The business of the banks had been conducted on the credit of the people. Now tliey were asked to believe that to take the accumulated profits was something in,the way of highway robbery. It was tile only clause in the'Bill preventing highway robbery. Tho banks had been trading on the public credit for twenty years, i and to enable them to fake advantage ! of the abnormal conditions in the gold market could not be entertained for two minutes. , “I trust the Minister of Finance will stand to his guns,” said Mr. Savage.

The simple case against the amendment was that the banks would not have had these accumulations of gold if they had not been safeguarded by law arising out of war conditions and protected ever since. Gold was to-day at a record price that the banks had done nothing to establish. They bad no moral claim to it at all. ’ Mr. A. E. Ansell (Govt., Chalmers) agreed that the Government decision was both morally and legally correct. Had it not. been for legislation, the banks would not have had sixpence worth of gold in their vaults. Mr. J. A. Lee (Grey Lynn) also supported the clause. Views of Mr. Stewart. The Hon. W. Downie Stewart (Govt., Dunedin West) said that as he had been responsible for the clause in last year’s Bill quoted in the amendment, he would like to make a few remarks having regard to the position then and the subsequent events. When the problem was first raised as to who was entitled to the gold, he took it for granted that it was an ordinary commercial matter which would be settled between the Reserve Bank and the ' trading banks. However, when it became clear that the banks were apprehensive the problem arose how a settlement could be made that would be just, equitable, and free from any accusation of harddealing. In submitting the clause that appeared in the old Bill, he had in mind that if Parliament of its own will declared that the profits belonged to the people, the banks might quite justly have a grievance and say: “You are acting both as judge and beneficiary in this matter. Your interests are entirely in fpvour of getting Parliament to find that the gold belongs to you and not to us, and we do not consider that you are an impartial tribunal.” Mr. Stewart said he had therefore recommended Cabinet to devise a tribunal to be appealed to in case no friendly settlement was made. He had anticipated that they would make a friendly settlement but if not that they should have some sort of machinery established. He had had a further motive. His reading on the subject of central banks led him to realise that unless a central bank Carried fHth it the support and co-operation and goodwill of the commercial trading banks, its task was extremely difficult. That was especially so in a new country setting up a central bank for the first time. For those two reasons he thought it wise to remove any possible accusation that the bpnks were being dealt’with by a tribunal that was going to benefit by its own decision. Cabinet had agreed to that and the Bill was drawn on those lines. There was a good deal of argument about it before it got to that stage, and if the banks thought they had lost the benefit of the clause, he was bound to say he thought the blame was largely their own, because he had made it dear that unless the Bill could get to the House within reasonable time there was no prospect of it getting through before Christmas. The hanks were to some extent responsible for the delay. Speeches by Messrs. Lee. Savage, and Ansell had all been based on the assumption that 'if a tribunal were set up, the decision must go the other way. Two Points Emphasised. The Minister of Finance, said Mr. ( Stewart, had putnip a very strong case, and surely if there was a very strong case Parliament' should have no fear of putting its evidence and arguments before some tribunal other than a beneficiary. The'Minister had secured a great deal of further information. \ The Rev. C. L. Carr (Lab., Timaru): From London? Mr. Stewart: “From London and elsewhere.” Apparently there was a very strong and a very authoritative body of opinion expressed in the Bill as now presented. The mere fact that eminent counsel had advised the banks to the opposite effect showed that they had the right to submit their case. He would like the Minister to indicate to the House what the prospects were of friendly co-operation with the banks. He knew that the House would be practically unanimous in favour of the clause. These two points he emphasised : First, they should not give the banks even the appearance of a tribunal that was a beneficiary, and secondly, the co-operation of the banks . was highly desirable, and some friendly adjustment should be made if that could be done without abandoning the rights the Minister -had established as his. Mr. W. Nash .(Lab., Hutt) said the Abstract of Statistics showed that in January last there was £5,458,330 in ■gold coin. In October the amount was £5,036,000. That meant that £400.000 had gone in the last ten months. That gold could only have been permitted’to leave the country by the Minister of Finance. Since Great Britain had gone off the gold standard the banks had made every effort to get gold out of the country to make the maximum profit out of it. Replying to Mr. Ansell, Mr. Wright said he had stated that generally speaking banks were unpopular and that the feeling was very largely against them. He did not, as Mr. Ansell said, make the statement that the House, was hostile to the banks, and consequently not fit to judge the case. The Labour Party attitude on the question was the same as its ideas in regard to land. Under the “usehold” poli icy of the party, a landowner could only sell his land to the Government at the price he originally paid.. Mr. Savage said the Sanks had accumulated something that had an abnormal value, and could not have been held had it not I>een for special legislation arising out of the war period protecting their gold reserves. The Hon. A. D. McLeod (Govt., Wairarapa) said the banks had done great service in the development and colonisation of this country. Recently he took exception to the attitude of one of the banks, a bank in which the people of this country had an interest, in paying a dividend when all the rest of the community were up against it. Another matter to which he took exception was when the banks as a whole attempted to dictate to the farmers two years ago. Apart from that he had no quarrel with them. ' No Permission for Export. Replying, the Minister of Finance, Rt. Hou. J. G. Coates, said he bad given no permission for gold coin to leave New Zealand. That did not apply to gold bought by the banks, which was free for export. Actually, in 1933 there had been no exports of gold. His figures did not agree with those quoted by Mr. Nash. It seemed that he had included silver. Mr. Nash: ’Then the silver has gone. Mr. Coates: Of course it has gone; does the honourable gentleman not know what has been happening? Mr. Nash: Well, tell us where it has gone to. Mr. Coates said he regretted be could not accept the amendment moved by Mr. Wright. He did not think be would do the right thing in accepting it. The clause clearly indicated the considered opinion of the Government. There were some of those closely as/od?_ted with the position who believ-

ed that if the clause were passed as drafted it would be unfair to those institutions which held gold. He preferred to keep an open mind. By that be meant that if the banks could show they bad a case, and Parliament had not dealt fairly with them in respect to the gold they held, between now and the Reserve Bank coming into effect the matter could come back to Parliament He was saying that in the event of there being a case that had not so far been made or represented. He desired to lie strictly fair. That would be the principle that must apply to the Government in dealing with this matter, and its judgment must be impartial. So far he had not heard any reason why the clause should be altered. Mr. Wright called for a division on his amendment, which received the support of Mr. Stewart, Mr. J. Hargest (Govt., Invercargill), Mr. H. Atmore (Ind.’, Nelson), and Mr. 'C. A. Wilkinson (Ind., Egmont). Tho amendment was .opposed by 56 members. Au amendment moved by Mr. b. Jones (Lub„ Dunedin South), providing for the appointment -of all the directors by the Governor-General-in-Council, was rejected by 43 votes to 24. A Liaison Officer. The right to the Secretary of the 'Treasury, who, by virtue of his office, will be a member of the board, to vote at any meeting of the board was sought under an amendment submitted by Mr. W. J. Jordan (Lab., Manukau)., Mr. Coates said that the Secretary of the Treasury would be a watchdog and would keep a liaison between the finance department, and the Government, . The Rev. C. L. Carr (Lab., Timaru): A watchdog, but on the chain! Mr. Coates (with a smile) : "No, he will be off the chain, but if he had to vote he might find himself in the same difficulty some members of this House find themselves in when it comes to casting a vote.” In replying to a question, Mr. Coates said that it might be necessary in the early years of the bank to look outside New Zealand for a governor. He shared in the general hope that it would .be possible to appoint a New Zealander, but the question was whether there was a man in the Dominion with the necessary qualifications and knowledge of central banking. The amendment was defeated by 43 votes to 24. Protection of Public Interest. “The Government of the day should have the right to say who is on the board,” said Mr. Savage, who sought to amend the clause under which the governor and deputy-governor would be appointed. He proposed that these appointments should be made by the Government at any time. He said his amendment was part of an attempt to get control of the bank into the hands of the people. The Government had the responsibility of the protection of the public interest. If the clause \vere passed in its present form the public interest would be at the mercy of a board constituted of private interests. The appointments to the board should be in the hands of the Government of the day. Mr. Coates asked the committee to consider carefully the effect of the amendment, which meant that the governor of ■ the bank would be appointed frqtn time to time by the Governor-General in Council. If the amendment, were carried shareholders would not have any say. Mr. D. G. Sullivan (Lab., Avon): We will fix it up before seven years are up. Mr. Coates: Yes, that is all right. Well, you should be satisfied to let it go n.ow. Mr. Coates appealed to Mr. Savage to withdraw his amendment. He gould not possibly accept it. Mr. W. J. Polson (Govt., Stratford) said he wgs in entire agreement with Mr. Savage’s amendment, He himself had given notice of one be intended to move later.. He had drafted an entirely new clause which provided all Mr. Savage had asked for. ■ • Mr. Savage’s amendment was lost by 39 votes to 25. Mr. D. W. Coleman (Lab., Gisborne) moved an amendment to delete a sub-clause in the BUI which states that a member of the Legislature or a civil servant shall not be eligible to hold office as a member of the board or to occupy the position of governor or deputy-governor. Tho amendment was lost by 40 votes to 24. Government Amendments. At the instance of the Minister of Finance, an amendment was made to the clause relating to the shares of the bank. A proviso was inserted restricting the issue of shares to British subjects who are ordinarily resident In New Zealand or who having, been so resident may at tho time of allotment temporarily be out of New Zealand for purposes of their business or other sufficient reason. Mr. I*. Eraser (Lab., Wellington Central) asked whether it would be illegal in the event of the shares being listed on the stock exchange for them to be sold to any person other than a British subject. Mr. Coates replied in the affirmative. He explained that the amendment covered a point raised by Mr. Wright the previous day, but was more satisfactory because it did not debar a person who might temporarily be absent from the Dominion for some good reason from holding shares. When clause 25 was under discussion, Mr. Coates moved an amendment to the effect that, after their first terms of office, the governor and the deputy-governor should not be elected by the shareholders with tire approval of tire Govemor-Gene-ral-hi-Counc.il as the Bill proposes, but should bo appointed by the Gov-ertior-General-in-Counc.il on the recommendation of the board of

directors. Mr. Coates indicated that he did not approve of the idea himself, but several members had discussed the question with him and he was anxious to find a basis upon which they could all agree.

Mr. Fraser said that in view of the willingness of the Minister to meet the wish of members, it was quite evident there must be a strong feeling among those on the Government benches in support of Labour’s advocacy that the bank should be controlled by the State. “Now, that is very gratifying,” said Mr. Fraser, smilingly. "We will give the utmost support to any proposal that will bring the Bill more in conformity witli pur ideas. I think that is a very fair and sporting offer.” (Laughter.)

Mr. Coates: What does it mean? Mr. Fraser: It means that so long as you come in our direction we will support you. (Laughter.) Apparently the idea that the bank should be controlled by the State has grown. There Is a wonderful unanimity now, and It is something to be very thankful for.

"I am glad the Minister is prepared to meet our wishes,” said Mr. Polson. “He has gone a long way further than lie had originally proposed in an endeavour to meet the objections not only of myself but of several others who hold the same view as I do in regard to State control.”

A Member’s Suggestion. Mr. F. Lye (Govt., Waikato) said that along with others he felt gratified

that the Minister was prepared to make the clause more acceptable. He suggested that the governor and the deputy-governor should be appointed by the Governor-General-in-Council on the recommendation of the Minister 'of Finance after consultation with the board. As an alternative, he suggested the State should definitely and absolutely .appoint its governor of the bank and give him a casting as well as a deliberative vote. Mr. Fraser suggested that consideration of the Bill might be held over until to-day to enable the law draftsman to study the clause. Mr. A. E. Jull (Govt., Waipawa) said the shareholders as shareholders were interested to the extent of an investment that returned five per cent. He could not see any argument against the suggestion that the State should appoint the governor of this bank. Mr. Polson said that the community as a whole definitely preferred that the State should have control of its machine. The governor should not be nominated by anyone but the State. He believed in the majority of cases, in fact, in very nearly every case, the appointment of governor was by the State. No doubt the State should not lose control. “Going Half-way.” The Leader of the Opposition said ho thought the Minister should be given an opportunity to sort out the suggestions that had been made. The Minister should be able to draft something that would give the State a majority on the board. Mr. Hargest was also of opinion that the appointment of the governor should be in the hands of the State. He hoped the Minister would agree to appoint the governor and deputy-governor in perpetuity. Mr. Coates said several members had expressed the opinion that his amendment did not go far enough. The original proposal was that the governor and deputy-governor were to be elected by the shareholders, so lie moved halfway between. The normal way would be that the Minister would consult the board as to who should lie the governor and deputy-governor, and the directors would make their recommendations. In 99 cases out of 100 the appointments recommended would be made by the Governor-General in Council. Several people believed that appointments by the Governor-General in Council were political appointments. That might be so, but It did not mean that politics dominated the appointments. The amendment was agreed to. At 0.45 a.in. the committee stage was completed. The third reading was proceeding when “The Dominion” .went to press.