RESERVE BANK

Dominion, Volume 27, Issue 37, 7 November 1933, Page 10

RESERVE BANK

Proposal Criticised MEETING OF PROTEST “Political Interference” OWNERSHIP OF GOLD COIN .Methods it is proposed to adopt in establishing in New Zealand a. Central Reserve Bank were criticised at a public meeting held in the Wellington Town Hall at n° on J’® B *?*' day. It was contended tliat. the Reserve Bank of New Zealand Bill passed by the House of Representatives last week 'violated the first fundamental condition laid down by Sir Otto Niemeyer. in that the new institution would be subject to political control and interference. Exception was also taken to the provision m the Bill whereby gold coin and bullion will be taken over from the trading banks at its book value instead of at current market price. A resolution protesting against certain features of the Bill was earned. The speakers were Mr. Stronach Paterson, Wellington, Mr. A. R. Atkinson, -Wellington, Mr. H. C. Jenkins, Wanganui, and Mr. R. A. Wright, M.P. for Wellington Suburbs. Mr. A. de B. Brandon, Wellington, presided over an attendance of between 500 and 600. The Dominion, he said, had arrived at a very critical stage in its existence, being overburdened by borrowing and squandering started by Vogel, governed by Order-in-Council, and controlled by various Government departments with inquisitorial powers. “We are now met with a most serious invasion into purely business matters by this nondescript invasion called a Reserve Bank,” he said. Before the speakers commenced to address the audience, Mr. H. lan Simson, of Hawke’s Bay,' who is contesting the Buller by-election as a Liberal-Labour candidate, rose from his seat in the front row and asked if the meeting wore a hole-and-corner affair. He was greeted by a section of the audience with cries of “Sit down.” “Lie down.” “Go to Russia. "Shut up,” and “Call the police.” "Bring a sergeant of police and the commissioner, too,” retorted Mr. Simson. . . After ‘ further interruptions a constable came forward from the rear of the hall and spoke with Mr. Simson. after which he resumed his seat. The first speaker, Mr. Stronach Paterson, had only been speaking a short while when Mr. Simson again interrupted. He was asked by the chairman to ! cease, whereupon a man in the gallery called out: “This is a public meeting. What is wrong with you?” More interjections followed, and the constable again came forward to Mr. Simson, who quietly left the hall in his company. Later the interjeetor in the gallery was also escorted from the hall by ■ a constable. Fundamental Conditions. Mr. Paterson said that when the Government, some three or four years ago, began to give serious consideration to some reform of banking am] currency in New Zealand, it very sensibly sought the advice of the best authority on these subjects that Was available to it. This advice was contained in the report of Sir Otto Memeyer, of the Bank of England. This authoritative report laid down two fundamental conditions for the succussful establishment of a Central Bank, the first and chief of .which was that “the bank must be entirely free from both the actual fact and the fear of political interference.” Sir Otto Niemeyer had added: “If that cannot be secured its existence will do more harm than good.” Since the Niemeyer report was made, said Mr. .Paterson, monetary conditions in New Zealand had been so radically altered, and so harmfully complicated by deliberate exchange inflation by the present Government, that it might well be questioned whether the present was at all an opportune time to attempt the establishment of a Central Bank; and whether, if an equally high authority to that which investigated and reported in 1930-1 made a similar full investigation today, it would not advise New Zealand to leave central banking alone until it had finished with political manipulation of the currency. Whether or not this was an opportune time to set up a Central Bank, sound financial and commercial opinion in the Dominion was unanimous that the Bill which passed its third reading in the House of Representatives last week, set about this job in the wrong way. “In almost every particular in which this Bill differs from the draft statutes attached to the Niemeyer report,” said Mr. Paterson, “it violates the first fundamental condition laid down in that report, and subjects the proposed Central Bank not only to the fear of political interference, but to the actual fact of political interference.” Mr. Paterson dealt at length with that part of the Bill relating to the appropriation of the gold coin and bullion at present held by the trading hanks. When the Niemeyer report was rendered Great Britain was maintaining sterling at gold parity, and the report recommended that one of the chief duties of the New Zealand Reserve Bank should be to maintain New Zealand currency within 30/- per cent, either way of parity with sterling. The intention, therefore, of the Niemeyer report was that the trading banks should receive for their gold its value in currency based on gold. The Bill provided that the Reserve Bank should pay the trading banks for their gold £3/17/101 per ounce in inflated New Zealand currency, the value of gold in the world’s market on November 2 being approximately the equivalent of £B/7/- New Zealand currency. The Bill reserved the profits of this very questionable transaction to the Government. “Bare-faced Robbery.” “The view of the man of average business intelligence, and of sound commercial morality.” Mr. Paterson continued, “is that the trading banks should have the same right to sell their gold at full market value as all other people have to sell other commodities, or other property, at its full market value —and that the proposal of this Bill is an act of simple bare-faced robbery. (Applause.) “The statement of the Minister of Finance in regard to this matter on the introduction of the Bill is nothing but a bit of very specious pleading—quite unconvincing to the average honest man. For such a man. this common theft marks a further stage in the moral deterioration of the Government. evidenced by, for instance, its repudiation of its contracts with holders of tax-free securities, its sham *voluntarv’ conversion of loans, and its

direction to mortgagors and leaseholders to partially repudiate their obligations no matter ■whether they can, or cannot meet those obligations. “On the face of it, the proposal of the Bill is to rob the banks. The banks are by some misguided people regarded as wealthy impersonal and soulless corporations. They are in fact composed of multitudes of small shareholders, many of them in humble and, possibly, even in straitened circumstances. Every citizen of this Dominion is by virtue of the Government’s shareholding in the Bank of New Zealand a bank shareholder, and this Bill proposes to rob you, and to rob me, whether or not we are direct shareholders in any trading bank.” Mr. Paterson then moved: Whereas the Government was advised by Sir Otto Niemeyer that the Reserve Bank must be entirely free from the actual fact and the fear oi political interference, and that if that cannot be secured its existence will do more harm than good, mid whereas the Government purported to accept this advice, the Minister of Finance has declared that it is highly desirable that till members of the community, whatever their political leanings, should have the utmost confidence in the Reserve Bank as a na tional institution, this public meeting of Wellington citizens emphatically protests against the hasty passing ot the Reserve Bank of New Zealand Bill with provisions for the management of the bank which violate this principle, will destroy publie confidence, and seriously threaten the independence of the bank. This meeting also protests against the proposal of the Bill to expropriate the gold held by the trading banks, without the provision for the assessment of its value by an independent tribunal which was contained in the previous Bill, as a flagrant breach of public policy and public morality, which will establish a disastrous precedent. and gravely prejudice the credit of the country. At this stage Mr. P. B. Fitzherbert rose and said that they had heard only one side of the argument. He took it thqt the public would be allowed to argue the point. Mr. Fitzherbert was asked by the chairman to resume his seat. j Differences Between Bills. The motion was seconded by Mr. Atkinson. who detailed points of difference between the first and second Bills. _ The Government had gone much too far in the direction of State control, he said. The appointment of the governor and deputygovernor had been taken out of the shareholders’ hands. Sir Francis Bell had advised that it was beyond doubt that the gold the (Government proposed to annex without compensation was the property of the banks. There was a fine moral ring and emphasis about Sir Francis Bell’s statement that was refreshing. The case against the treatment of the banks as proposed by the Bill stood on the broad grounds of principle and precedent which no arguments or calculations.could shake. Whether the claims of the banks were right or wrong the Government was in the wrong in the course it had taken. A Bill Without an arbitration clause would have been justly open to attack a year ago; a Bill without an arbitration clause, following one that had such a clause, inevitably intensified the suspicion surrounding the whole business. The rejection of the amendment moved by Mr. Wright in the House to restore the arbitration clause was to him the saddest thing in a deplorable business. . Mr. Fitzherbert indicated that he wished to move an amendment, but the chairman said at that moment an amendment was not desired. “Tlie Rake’s Progress.” Mr. Jenkins said that if the Government was sincere it would demand that the non-bank investment agencies should pay heed to the principle of preserving liquidity. But the physic was being forced down the healthy and the unhealthy were left alone. Nothing was done to protect the future liquidity of the £99,420,873 of public investments. “It may reasonably be asked,” said Mr. Jenkins, “why this neglect of the greater investment problem and this busying with the healthy institutions which have justified the public confidence reposed in them. The answer to that question is written in the Bill itself. The whole Bill has been drafted, not to establish a sound Central Bank, but to assist the Government out of its present deplorable financial'muddle, and to allow the ‘rake’s progress’ to continue a little longer than sound banking would allow. “The Government already has about £14,000,000 of Treasury Bills outstanding, nnd possibly £18,000,000. By the end of this export season the London credits, taken over by the Government will, I estimate, be within the region of .£24,000,000 if export prices remain stable. Treasury bills will then equal a whole year’s Budget income. The Reserve Bank Bill provides that the bank may buy and sell New Zealand Government securities to the extent of twice its capital and reserves. There is no limit in the Bill of the total amount of Treasury bills which the Reserve Bank may discount, rediscount, buy and sell, and neither is there any limitation on the renewal of Treasury bills. Treasury Bill Finance. “The Government has overshot the mark of sound finance. Treasury bill finance is abused. Treasury bills are a first charge on the reserves, and should bo issued only in anticipation of actual revenue. The. Government, therefore, will be a year behind iu its finances. The only limitations on the Reserve Bank taking up Treasury bills is the provision that the bank may not grant the Treasury accommodation in excess of one-half of the estimated revenue for the year. The Reserve Bank will, therefor. 0 , be empowered to take up over £12,000,000 of Treasury bills and continue to renew them.’ And during the first, four years it will be empowered to hold Government securities of more than three months’ currency to the extent of £3.000,000. “There will be a profit of £5.000,000 on the gold taken from the banks., and as it will be only necessary to hold 25 per cent, sterling exchange as a reserve against the currency there is another £4.500,000 available for assisting _the Government, making a total of £21,500000. which the establishment of a Reserve Rank makes available to the Treasury. With the trading banks taking up, say. another £5,000.000 of Treasury bills, yon will see that the. exchange chickens can be prevented from coming home to roost for a little longer yet. That, is the kernel of the whole matter, and that is the reason why no Cabinet Minister has sought to defend in public this unsatisfactory proposal.” “Fifth Wheel to Coach.” “What-is the real object behind the establishment of this bank? That, is what the man in the street is asking, but so far he has received no answer,” said Mr. Wright. “It seems impossible to get any definite information.” Mr, Wright said he was one of those who regarded the now bank as a fifth wheel to the coach. The Minister of Finance had stated that one of the functions of the new institution would be to discount Treasury bills on behalf of the Government. If that was all it was going to do, it would have to do an enormous amount of discounting to make the profits which they had been told it would make. The Government was already anticipating that a profit would be made. “It reminds me of that seventy million pounds we were told about.” said Mr. Wright, amid laughter. “We saw it shimmering on the horizon, but it disappeared out of sight. It seems to me that this £640,000 the Minister tells us about will disappear in much the same way. The Minister also refers to the banks’ indemnity. Ah 1 thereby hangs a tale. The manipulation of the exchange is going to cost the Government an enormous amount of money. One is entitled to ask this question : Is the Central Bank to be a kind of buffer or a scapegoat, if you like, to carry this financial mess on its shoulders and go out into the wilderness? Is that the idea A Voice: That is the idea. Mr. Wright said be believed that the “exchange blunder” was the major reason for the hasty passage through I’ar-

Moment of the reserve bank legislation. The exchange manipulation had not ceased. There was no word as to when the rate would be allowed to find its normal level. He did not believe for a moment that the new bank would declare the exchange free. After all. it would have to carry out the policy of the Government. . Mr. Wright strongly urged that the hank should bo ontirolv free from noliticnl control. If it was not. he said. it. would bo a danger and a menace to New Zealand. The motion was declared carried on the voices.