A. SERIOUS EXPERIMENT

Evening Post, Volume CXVI, Issue 96, 20 October 1933, Page 10

A. SERIOUS EXPERIMENT

(To the Editor.) ' Sir, —It is curious that in respect to the establishment of a Keserve Bank in this Dominion, so little real interest has been manifested by those who are most likely,to be affected when such an institution will be brought into being. And members of Parliament, presumably, will not be permitted to vote in accordance with their convictions, but will be compelled by their party leaders to 'vote.according to instructions. Such is the result of party government. It is understood that the Government is assured of a majority in favour of the Bill. Still, at the eleventh hour I should like to place on record some points which the public are vitally interested in.

1. The Eeserve Bank will deplete the resources of the trading banks by no less than £12,000,000, that being the estimated amount that will bo transferred ,to the Keservo Bank. It must surely be obvious that upon such transference, credit must be restricted—this, too, at:a time when, in the interests of the Dominion, credit should be legitimately expanded, not contracted. . 2, Upon the Beserve Bank undertaking the note issue, it.is-estimated that in. note tax the Government will lose at least £270,000 to £280,000 per annum. . . .

3. The Bill provides that the Government is to lend the Reserve Bank £1,000,000 free of interest. Beckoning that this loan would cost 4 per cent., the cost to .the country, would be £40,000 per annum. 4. The Government has already a third interest in the Bank of New Zealand. In looking into the pros and cons, has the Government taken into account the effect that its new venture will have on the value of its holding in that institution? . .

To me it is quite incomprehensible that the Government should enter into such a'rash experiment at the present juncture, and its anxiety to rush tho Bill is certainly suspicious, and savours of carrying out instructions. ■ There lias been no agitation in New Zealand for a Reserve Bank, and, in my opinion, it would be time to consider such a question when other portions of the Empire should adopt tho system. The only other country in the Empire that has a Reserve Bank is South Africa, where it has had a particularly chequered career. At one stage of its existence it had lost £1,500,000 of its capital, but since going off tho gold standard that loss has been considerably diminished.

• The only arguments I have seen in favour of the Besorvc Bank are:—

(a) That it . would regulato the currency.

(b) It would fix the rate of exchange.

(c) It would discount Treasury bills at a lower rate than the trad-

ing banks, which, have to face heavy and illogical taxation.

Tho proposal in tho previous Bill to keep the exchange rate within 30s of sterling, is omitted from tho revised Bill, for the reason, no doubt, that a Reserve Bank' (properly conducted) and an uneconomic exchange rate are incompatible and it would bo unwise for the Government to discourage its farmer supporters by emphasising tho fact.

It has more than once been pointed out in the Press that Sir Otto Niomeyer expressed tho opinion that if the Reserve Bank were subjected to any form of political influence or control, it would bo worse than useless— in other words, a dismal failure. There seems,little difference between tho proposed Reserve Bank as outlined by Mr. Coates and the politically-controlled bank against which Sir Otto Niemeyer and Kisch and Elkin both issued strong warnings.

I find that I liavo omitted one argument in favour of the Reserve Bank, and that a very important one. The banks' gold is to be taken over at face value and the profit is to go to the Treasury. One cannot but bo cynically amused at the Minister's virtuous statement that world experts believe that in principle any profits or losses on the gold should accrue to the State. Does the Minister really think anyone is simple enough to believe that had gold been at a discount, tho Government would have agreed that tho Reserve' Bank should pay face value instead of market value and that the loss should accrue to the State? If not, I do not think tho question of the principle need bo considered, and the more likely explanation is that the Government desiring something to setoff against tho disastrous cost of its high exchange policy has decided that its need ia greater than the banks', and, in the words of tho chairman, of the Associated Banks, "straight-out confiscation" has been resorted to.

It is a matter of great regret that much of the recent policy; legislation

has been in a certain direction, and one wonders what -will happen next.— I am, etc.,

ASMODEUS.