RESERVE BANKING

Evening Post, Volume CXVII, Issue 50, 28 February 1934, Page 14

RESERVE BANKING

(To the Editor.)

Sir, —Mr. J. Hislop did not tell your readers everything regarding the Bank Charter Act of 1844, which created, the Bank of England as England's Reserve Bank,' nor, did. he seek to explain why New Zealand has been so long in. making up its mind to.follow suit, since ,he suggests that England's move was such a good thing for finance. The Bank Charter Act was passed in 1844 in order to prevent the abuse of credit, and, it was thought, to insure the community against the great loss and inconvenience of commercial panics. The promoters of this Act evidently thought that bank-notes •wero the most, important of all the instruments of credit, and that it was.by their means that the purchasing power of speculators was increased. The Act was accordingly devised with the view of: restricting, the circulation of notes. It was laid" down thai if the Bank of England note.issue.exceeded.£l4,ooo,ooo the Governors of the bank-would be compelled to keep an equivalent to the excess, either in coin or bullion. It is of interest to note that though this Act was devised with the express purpose of preventing panics they have not since the passing of the Act deviated from their regularity.

The establishment of reserve banks throughout the -world can be likened to the occupation of the last line of reserve trenches by n defeated army. Reserve .banks are being brought into existence in the vain hope that they will prove effective in resisting the almost universal demand for a monetary system truly representative of real wealth. Sir Otto Nicineyer told us when in New Zealand that reserve banking properly administered was capable of arresting depressions such as the one which has almost wrecked this civilisation. The Federal Reserve system of New York, with all its gold, failed to respond; the Bank of EngH land was unable to do anything, and it cannot be suggested that those of Germany and France were successful in arresting the economic blizzard which produced the paradoxical situation of starvation in the midst of plenty. Reserve banking will not succeed in restoring confidence under the existing monetary «ys-' tern, but it may fulfil a useful function under an entirely new system where the token of exchange bears something like a faithful representation of real'wealth. —I am, etc., : . . . K. M. LITTLE.