The Dominion TUESDAY, DECEMBER 31, 1940. RESERVE BANK AND THE STATE

Dominion, Volume 34, Issue 82, 31 December 1940, Page 6

The Dominion TUESDAY, DECEMBER 31, 1940. RESERVE BANK AND THE STATE

The appointment of Mr. L. Lefeaux as Governor of the Reserve Bank of New Zealand expires today. The question of a successo will, no doubt, have had the consideration of the government, is of the first importance that the position should be filled y possessing the confidence of the trading banks, and the public general ly. Manvpeople will regret that Mr. Lefeaux has concluded his term of office without'having made any public s . tatement ’ Othei h t S y ch annual reports presented to Parliament, with respect to the pat such an institution could be expected to play in a country with an industrial development such as that found in New Zealand. The ot > address known to have been given by the Governor wasu one to the Labour Party caucus recently, and as it was not open to the ptibhc all that is known is that the majority of the members, according to the Socialist member for Christchurch South, disagreed with Mr. Lefeaux’s conclusions. . . Central banking is of comparatively recent origin, but people were given to understand that such an institution could be of im P°. rtan T t service in easing the strain during times of trade depression by giv b a creator degree of elasticity to the monetary system. To do this it was expected that the institution would maintain a strong P O5 *I*™ 1 *™ with liquid funds available—but since the present Government came into office and placed the Bank under political control and weakened the authority of the Governor and directors the position has occasioned disquiet. The proportion of reserves to liabilities on occasion has fallen to almost the legal minimum limit of 25 per cent. The extent to which the Government has used the credit of the Bank for financing its schemes has provoked adverse comment, and the inflationary tiend has been noted with grave distrust. From time to time in the annual reports of the Bank statements have been made which have arrested public attention. In the 1959 report, for instance, it was stated: In view of the relationship between internal credit expansion and demand for overseas funds the connexion between the: total increase of more than £14,000,000 in the accommodation granted by the Reserve Bank to the Government and the loss of overseas funds which occurred during the year is significant. It is but the full significance of these twin developments has never been fully explained to the people, and that is a matter for re§l Then there was the plain warning given in the same report that the Government should limit the demands made on the Bank. 1 lie significance of this statement is apparent: If steps were taken to reduce outstanding advances from .the Bank there would be a better prospect of the Bank being able to assist by granting accommodation during relatively unsatisfactory export periods without jeopardizing the financial economy of the country. That means, clearly, that until these liabilities of the State have been reduced the ability of the Reserve Bank to assist the community, should a period of low prices for exports rule—-and the Minister of Finance fears that development after the war—will be drastically limited. The regret will be general that Mr. Lefeaux has completed his term of office without the people having had an opportunity to learn more fully the views of an expert on the purposes of the institution he has controlled, and especially his views as to how the use already made of the Bank’s resources has affected the economic position ot the Dominion. Also it is of importance and concern to know his ■opinion regarding future policy. These matters do not concern so e y the members of the. Government party, but only to them have the considered views of the Governor of the Bank been disclosed. Why should not the public be given this information? It is possible that in his final report, presuming that the next one will have been prepared under his direction, Mr. Lefeaux will have added something to the routine review of the Bank’s operations, but it will be most regrettable if before he leaves he does not place on public record for the benefit of the Dominion how he, as one trained in central banking, regards the policy that has obtained since 1936, what its effects have been, the dangers to which it may have exposed the country, and the steps necessary to ensure the maximum of safety and efficiency. It wm indeed be a serious matter if the only expert on central banking to be directly concerned with banking business in New Zealand leaves the country without the people knowing what he thinks of the position as it stands today.