NOTE ISSUE

Evening Post, Volume CVIII, Issue 118, 14 November 1929, Page 9

NOTE ISSUE

FEDERAL POLICY EXPANSION IN AUSTRALIA THE GOLD RESERVE (From "The Post's" Representative.) SYDNEY, 7th November. The sudden decision of the Federal Government to expand the note issue, as one means of relieving the present financial stringency, is understood to have the approval of the banks, whose views were ascertained .it a conference held between the Treasurer and the representatives of the various banks. It has been the consistent policy of the Note Issue Department of the Commonwealth Government ever since it was vested with the control of the paper currency to preserve, in the issue, what was believed to be the requisite elasticity. Rigidity, it was recognised, either in the direction of undue limi-tation-or undue inflation would be disastrous; but by meeting the variations in legitimate trade it was sought to retain in the currency a genuinely healthy condition, at the same time providing, for the community, sufficient of the tokens to permit of tho facile conduct of business in every department. Throughout recent years the tendency of the issue has been downwards. On tho last Monday in June, 1921 —which marked a point of time in a. period, of great business activity—the paper outstanding represented £58,228,070. At tho -end of June last the figure was £42,258,226, or £15,969,54<t less. ?et, in the interval, trade in Australia had undergone general and fairly extensive expansion.' During recent months there has been admittedly some shrinkage in the aggregate turnover; but the?e is a Behool of economists which considers it justifiable, to a certain extent, to facilitate business by creating additional paper money. There is another that maintains that undue inflation is dangerous at any time, and which may be opposed to the policy of issuing additional tokens at this stage', preferring that economic laws be left to work out the cure along lines which are regarded as natural.

If the proportion of gold backing to notes outstanding be taken1 as a basis for calculation, there is plenty of justification for the issue of additional paper money tokens. Australia's note issue, as a matter of fact, is one of the best in the world, measured on the basis of gold backing, according to .expert opinion. The statutory obligation is for a gold reserve of one-fourth of the notes issued. .Instead of hplding. the minimum of 25* per cent., however, the reserve is kept at almost double that proportion.

At the end of September last, for instance, there was in the reserve gold valued at £23,441,497, which equalled 57 per cent, of the notes that wero outstanding. From that fact it will be readily recognised that the intention of the' Commonwealth Bank to ship about £6,000,000 to the Bank of England, ■will not threaten in any material degree the soundness of the issue. Undoubtedly that action will prove' helpful, not only to the Bank of England, but also to Australian finance -in London, where there has been a temporary dearth of funds held for Australian account. Of the total of notes outstanding at the end of September last, the public held £24,969,552, and the banks £16,----861,674. It is of significance, as indicating the trend in tho demand for notps by the public, that in July last its quota was £24,472,561; at the close of August it had risen to £24,626,962. Last week's return of the Commonwealth Bank indicated that there had ■been an increase in th"c note issue of. £620,000, the latest amount represented by the tokens being £42,878,226. There will be general satisfaction in the knowledge that the increase in the note issue has. the approval of the banks, and has not been forced upon them by the i»ew Labour Government, which is going to be responsible for so many innovations during the next few months. It is unlikely that the people -should tolerate interference, for political reasons, with the currency of the Commonwealth.