STATE BANK NOTES.

Evening Post, Volume LXXXII, Issue 65, 14 September 1911, Page 2

STATE BANK NOTES.

"■ ♦ AUSTRALIAN SYSTEM. PROFITS OF THE COUNTRY. No. 1. The Prime Minister (Sir Joseph Wardl proposes "to ask the House to change the system of issuing bank notee. The&o will in future, after reasonable notice is given, be issued by the Government, as ie done in Canada, and other places." What t is done in Canada, diftere from what is done in some " other places ' — in the Commonwealth, for example. Sir Joseph, no doubt, spoke advisedly wben he referred to "other placies" as well as that other Dominion. Finance resembles medicine in that, white both *eitnccs demand a working knowledge of first principles, widely different diagnoses or conclusions are arrived at from the same set of 6ymptoms manifested in the body politic or in the human body, as the case may be. § There are, of com-se, eminent specialists in both sciences, but the "case" is afc the mei'ey of either of them. An attempt then will here be fflade to explain in "language understartded of tho people" what- a State note issue is. Without putting forward any claims to prescience, it may be stated that it waa in the Evening Post of 6th September, 1910, the view was expressed that "it would not be surprising if it fa State note" issue] were adopted by Now Zealand and possibly introduced by Us originator [in Australasia.], the present Prime Minister, during the coming session," That session came and W*nt, and Sh* Joseph was too busy, perhaps, to take the matter up, moreover the Coronation and the Imperial Conference would occupy him in London. Sir Joseph Ward has now given but the merest lightning sketch of his proposal — merely a few short, sharp strokes of the cfayon. He promises to furnish fuller details anon. Now, it muet have oceurred-^ftven to the youthful mind— that the giving of a piece of printed paper for a, piece of gold is a pleasant way of ob» taining money. Tru«, the giver of the pa-pef undertakes to pay back in full the money which the pa-per represents when it ie produced for payment, but lie has a portion of the money to play with, to spend— to do what he likes with-— -until the paper comes back. That is what the batiks actually do. They are allowed to issue pieces of paper— -crisp, pretty, and toush-=-and to receive gold m exchange. They must, howover, make provision for all the paper that may come back, and this they do by having a hoard of gold in their vaults more than enough to meet the notee that are_ out. This note issue, by the way, is not all profit to the batiks. In -New Zealand they pay to the Government £3 in. every £100 worth of note* issued so a tax. Then the cost of printing (very heavy), and labour attached to th« issue and handling of notes generally comes to about £1 in every £100 issued. ( However, the Commonwealth now practically prohibits the Australian, banks issuing their own flotes) it does it itself, and the profits go to the State, which is the communiyBehind the notes there must always be, aS we have said, a gold reserve, sufficient money to meet the notes should they be presented simultaneously for payment. In this country notes are a first charge against the asset® of the bank. In New Zealand at the end of June last, the latest quarter, the relationship between notes and coin and bullion was as follows:— i Notes „..£1.717,007 Coin and bullion ... 5,102,664 go that there was ample funds in money to meet the notee ihat were travelling from hand to hand around, the country. In. Australia at the December quarter, before the Commonwealth notes were issued, the position was as follows :— Notes £ 4.291,101 Coin and bullion ... 32,886,634 It will be seen, then, that the ( banks had ample prfecious metal at their command to meet the notes when presented. The colloquialism ''right as the bank" passes into the limbo of forgotten things, for henceforth ifc will be "right as the State " in the matter of security co far as Australia is concerned. It has been found that £25 in gold for every £100 of notes issued is a safe margin in the case of a country like ths Commonwealth, Not only has the mam. with the £1 note 5s securiiiy in gold, hut he is a creditor of the State for 15s secured on its undertakings and all else that it has. How the banks stand in this matter tnay be gathered from the following percentages of specie, or money, held against note issues in some countries,:— Per Cent. Bank of France 83 Imperial Bank of Germany 53£ Imperial Bank of Russia ... 110 Austro-Hungarian Bank .... 774 | Argentina f ., .. 71 ! New Zealand „« ». 309 ! Tha Commonwealth banks, used to issue about £5,000,000 in notes. Mr. Fieher, Commonwealth Treasurer, elected to issue £7,000,000 to begin with. These the banks had to buy with gold and ''no_ reduction was made on taking a quantity." The average amount of this paper held by the banks as "till ! money " on 30th June last was £5,118,812, and there was in addition £3,613,000 in the hands of the public, so that the £7.000,000 limit had already been paesed. As an additional security and a check upon the note printing press the law states that when the £7,000,000 mark is passed then £1 in gold for every £1 note issued over and above the £7,000,000 limit shall bo kept in the Commonwealth treasury chest. It is believed that th* Commonwealth note i«sue will soon reach £10,000,000. The question that naturally arises is v?hafc is being done with, the money? It is being lent to the States at a, cheaper rate than they could obtain it for themselves. Up to the 21st June last there had been lent £4.135,500, and in addition £1,106,500 was placed with the banks for a year to earn interest nfc 3 pot cent. So, then, theoretically, the people have the note-issue themselves and are lenders on fixed deposit at 3 pet cent, pof annum, the banks hs< coming borrowers.' That is the Australian Commonwealth note system, Before it was put into operation it was as fiercely assailed a-s it was warmly Commended, and both by authorities whose utterances were worthy of the utmost respect. The treatment prescribed by "Dr." Fisher and his colleagues wa« bitterly denounced by practitioners of eminence j also other practitioners described it as the very best manner oi dealing with the "ca-s«. M The patient represented by the Australian people seems to be doing fairly well under it at present ; but as it only began in June hat there has not been time enough for forming definite conclusions upon its success of otherwise, Dr, M'Arthur, S.M., was occupied at Lower Hutt yesterday in the hearing of a longstanding, civil action in which J. H. Miller and Co.. claimed from Michael Lord the mm of £29 8s 4d for goods supplied. After hearing further evidence judgment was entered for plaintiff for £20 7s with coei« amounting to £4 6s. Mi 1 . Dix appeared in support of the rJaim and Air. Cracrvft Wilson fot the .deiejida-ay,