RESERVE BANK'S WORK

Evening Post, Volume CXVII, Issue 127, 31 May 1934, Page 10

RESERVE BANK'S WORK

(To the Editor.)

Sir, —With reference to your comments pii my letter of the 22nd instant, I admit that miracles" cannot"->ue expected from the Reserve Bank .or any other financial experiment which might i>e attempted to improve, existing conditions. . Certain- beneficial results may accrue upon the establishment of the Reserve Bank, provided, as you suggest, it has the full co-operation of the existing financial institutions. ■

While agreeing that the Central Reserve Bank system of Great Britain has proved to be far more satisfactory than the Federal Reserve Bank system of America, I cannot agree that the socalled leadership of the Bank of England has been at all satisfactory. It is so easy to be wise after the event, but the return of England to the gold standard was a disastrous' policy which could not be maintained. The reversal of this policy evidently found the Bank of England in great difficulties as, according,to Mr. Downie Stewart's statement, our Government was asked to compel the trading banks, of New Zealand to provide a million a month in London. The loyalty and support of the trading banks of the Empire was largely responsible for the maintenance of the Bank of England's position during the "recent crisis.

I cannot agree that there is much difference between the South African Reserve Bank and the New Zealand Reserve Bank, because the whole basis is. so different from that recommended by Sir Otto Niemeyer, particularly in regard to Parliamentary control, that it appeaTs that our Reserve Bank has served, and will' continue to serve, a political purpose. In regard to this matter, there is considerable comment in the city about the directors recently appointed, not from any lack of ability or as business men, but from their lack of knowledge of the principles and practice of banking, aud, in addition, it is generally considered in the city that as far as-the politics of the directors are concerned, a more perfect Reform Party panel could not have been appointed. . . ■'..■: : :

It seems that the Government is playing into the hands'of the' Labour Party, whose ideas about a State Bank have not been changed by the Monetary Commission. On a change of Government, /sve may see the Reserve Bank turned into a State Bank and the whole of the existing board unceremoniously dumped without compensation. They may have contracts, but our present Government has demonstrated that Government contracts of all kinds can be repudiated on terms to Buit themselves. The people, however, will finally have to foot the bill for this dangerous experiment.

' My reference to the Governor as a true'son of the "Old Lady" was intended to be the highest possible compliment, and I had no intention whatever of underestimating the value of the Deputy Governor's local experience.

My estimate of the position in regard to the proposed Reserve Bank note redemption of Treasury bills has apparently been misunderstood. The banks, between them, vrill have to provide approximately £6,000,000 to retire the present note-issue, mil require pro-

bably £5,000,000 till money,, and approximately £3;000,000 to 'maintain their and in addition, there is the Government account, of approximately £1,000,000, to be taken over, making a total of £15,000,000 previously mentioned1 by me. Against this may be set off approximately £5,000,000 for the trading banks' gold. There is no ...likelihood whatever that the trading banks will try to pump notes into the community and bring about the inflation which you fear. Furthermore, I cannot see that the trading banks are going to much expense to safeguard the public in view of the treatment which they have received recently at the hands of the Government.- • .-';. : : ... ~-..:■ •' . •Almost every time the -Minister of Finance makes a public statement he refers :to. prospective low interest rates. :Henpdqu^t anticipates that the trading will be foolish enough to take upl a lpng.-dated funding loau at 2. per cent. Or thereabouts in redemption^ of the Treasury bills. Interest rates may go lower, but nothing is more -certain than that they will again rise, and very severe capital losses may be faced, by the,banks or other investors in taking up a long-dated funding loan at the suggested low ' interest rate.—l am, etc., ■ EX:BANK OFFICER.