THE BANK'S FUNCTIONS

Evening Post, Volume CXVI, Issue 96, 20 October 1933, Page 5

THE BANK'S FUNCTIONS

CONTROL OF CREDIT

GOVERNMENTAL OVERSIGHT

The functions of the Besorve Bank aro defined as follows: —"It shall be its primary duty to exercise control, within the limits of the powers conferred upon it by the Act, over monetary, circulation and .credit in New Zealand, to the end that the economic welfare of the dominion may be- promoted and maintained." The measure discloses an increasing tendency towards Governmental oversight. Tho first example is found in the new requirement that tho rules of the bank must be subject to the approval of the Governor-General in Council. The original capital remains at £500,000 in £5 shares, which will be offered at par for public subscription, and the limit of any individual holding is fixed at 500 shares._ The State's contribution of capital is still £1,000,000. It? is provided that if the publicly subscribed capital is not forthcoming within three months, tho balance will be taken up by the Minis;ter of Finance for subsequent disposal. Moneys payable by the Minister to ihe bank may be in cash or in Government securities, and whereas the original Bill provided for an interest rate of 5 per cent., the new measure prescribes "the current rate of interest' instead. BUSINESS OF BANK. The legal specification of the business of the bank, which has been described as a bankers' and not a trading bank, remains unchanged, but witn respect to its control of currency an important alteration has been made. In the first^place it will be lawful for the bank to issue bank-notes of a denomination less than 10s with the consent of the Governor-General, in,. Council, but its former right of note issue for twenty-five years has now been mado indefinite. In addition, the specific, right originally given of solo note issue has been eliminated and the Finance Minister's reference to this alteration has not made the reason clear. One of the functions of tho Keserve Bank -will be to provide financial accommodation for the Government and local Authorities. The limit of annual accommodation, which in the original Bill was . one-third of the estimated revenue in the case of the Treasury and one-quarter in tha case of other Departments and local bodies, has been changed to a maximum of one-halt m the case of the Treasury. The Beserve Bank is to be the custodian of the reserves,of the trading banks, and a new provision ensures that gold coin and bullion held by the trading banks on account of others shall not be taken over by the Reserve Bank. •What has to be transferred is gold com or bullion held by the trading bank on its own account. A most important new provision states: — . • ■■■■•_- ---"Any profit that may be derived by the Reserve Bank from the sale of cold coin or bullion transferred to it shall be credited to the Public Accoint." This disposes of one of the outstanding issues in the controversy between the Government and the trading banks. In the original Bill any dispute as to the apportionment of the profits was to be settled by arbitration, but the present Bill specifies that the value of gold bullion in bank-notes shall bo at the rate of £3 17s 10id;an ounce of the standard gold content eleven-twelfths fine. THE EXCHANGE BATE. With respect to the fixation of exchange the Bill previously provided that at-some future time, to be determined by the Governor-General in Council, tho rate of exchange with sterling should be effected at' a rate not varying from parity more than 30s per £100, which is the telegraphic transfer rate in normal times. The Minister had explained that this has been eliminated because it would suggest a definite direction to the bank to pursue an extreme deflationary policy to attain parity with sterling. Therefore, the new Bill simply states that the bank will fix the rate of exchange. The minimum reserve which the bank has to maintain is 25 per cent, of the aggregate amount of its notes in circulation, and other demand liabilities. The minimum, previously was 30 per cent., and the object of the change is to afford a greater measure of flexibility, in accordance with the suggestions of the Economic Conference. Also in the interests of flexibility the Minister of Finance is given power to suspend the. obligation of tho bank to increase the minimum discount rate if the reserve falls below the prescribed minimum. THE DIRECTORS. The: constitution of the board of directors has been remodelled. The number of directors, apart from the governor and deputy governor, has been increased fom five to seven, and in addition the Secretary of the Treasury will bo an ex officio member without tho right to vote. Tho governor and deputy governor are to be olectcd by the shareholders, and will hold office for seven years. Of the directors four will be elected by the shareholders, two of them being farmers and two industrial or commercial men. Three will be appointed by the Government, and one of these directors will retiro every two years, tho order of retirement of tho original appointees to be fixed by lot. Thereafter their term of appointment shall be five years. The election _of governor and deputy governor must be approved by Order in Council, and the first shareholders' directors aro to bo appointed by the Government. The first

opportunity of shareholders to elect a director will be on June 30, 1936, when one of the original appointees retires. The remaining three will retire at annual intervals. Once elected by shareholders they hold office for five years. The aggregate amount of fees payable to directors shall not exceed £4000 per annum.

In the distribution of profits tho cumulative dividend has been reduced from 5$ to 5 per cent. - Banks carrying on business in New Zealand have to furnish monthly returns to the Reserve Bank, and this clause has been extended to give the Reserve Bank increased powers of inspection. No trustee shall bo qualified to hold moro than 500 shares.