CENTRAL BANK

Evening Post, Volume CIX, Issue 131, 6 June 1930, Page 10

CENTRAL BANK

AUSTRALIAN OPPOSITION

"WOULD BE DISASTROUS"

Perusal of the full report of the speech nindu by the Federal Treasurer (Mr. Theodore) in moving the motion for the second reading of tho Central Reserve Bank Bill has not altered the contention of financial authorities that there is no justification, at tho present, time for the introduction of such a. measure, says the ''Melbourne Age." On. the contrary, it has confirmed their view that the Bill is not required an^i that a bank constituted as proposed cai i do nothing to improve tho present flu.ancial position in Australia.

It is considered that not only has'Uie Treasurer failed to make out a g((nod case for interfering with the Comni.cmwealth Bank as at present constituted, but that he has given' no convincing reasons for the principal features of the new measure. * Among them, the strongest exception is taken to tho proposed fixed percentages of deposits, which are to be compulsorily maLitamud by the trading banks with th:s new central bank. Bankers contoud that compliance with this provision must

bring about the sale of some of the banks' short-dated interest bearing reserves or the calling up of advances. .Either course would result in less profits to the bank and possibly a reduction in dividends, which would naturally mean less spending power for tho community.

"Advances made by the banks have reached abnormal figures," said a loadiug banker, "and this assistance to customers will necessarily be curtailed if the banks are compelled to maintain fixed percentages of deposits at tho central bank. It has not been found necessary to establish a Central Reserve Bank in the centre of th financial world —London. It was claimed that the Bank of England acted as such, but it has not been made compulsory for the trading banks to keep rigid amounts there. They, do keep balances at that bank,' but the amounts arc available at any time and without costs. Tho Australian trading banks use tho present Commonwealth Bank in the same way, but under the Bill such balances would be rigid and beyond the control of those who placed them there, excepting that they might borrow their own money back by paying interest on it. The bankers' deposits held by 'he Bank of England amounted to only 2J per cent, of the demand, liabilities, and fixed deposits, as compared v«»th 10 per cent, and 5 per cent, respectively as proposed in the Federal Bill. In Australia, where each trading bank has numerous branches, it is necessary to keep a large amount, running into several millions, for till purposes. This money, together with that now kept at the Commonwealth Bank, is always available to meet requirements as they arise. But to take £ 18.000,000 from the banks and transform it into "frozen credits" in the central bank will seriously curtail ordinary banking operations.

"As nothing really beneficial has been shown by the Treasurer," he continued, "as likely to result from the establishment of the new institution, it is astonishing that the heavy expenditure involved should be so lightly faced in the existing depressed conditions. There will be a number of highly paid officials and expensive buildings in the usual style of anything undertaken by the Government. The Treasurer claimed as one reason for the new bank that it would bo able to control tho currency, but .hat is being done most effectively now. It was also said that the new bank would 'expand or contract credit as may be necessary.' To leave the expansion of credit to political power has been proved too often to be disastrous."