THE RESERVE BANK

Evening Post, Volume CXVIII, Issue 52, 30 August 1934, Page 14

THE RESERVE BANK

GOVERNMENT INTERFERENCE

RIGHT OF REPRESENTATION

The aspect of Government interference with the Eoscrve Bank was touched upon by Professor B. E. Murphy, of the Chair of Economics at Victoria-. University College, in the course of an address at ■ Palmcrston North.

Whatever the portents of the situation,- said Professor Murphy, governments could not in modern times remain indifferent to what was happening in banking. Sir' Otto Niemeyer had said that the Eeserve Bank must be free ffoin the fear or fact of Government interference. • That was almost nonsense. The Government had tho right to make representations, and it must be left, to the discretion of the directors to act upon them. If they decided against the Government it was unlikely that the latter would leave the matter there. , Good banking depended upon the sagacity and. integrity of those at the top. In that respect New Zealand had.bpen very fortunate. All tho legislation in the world would not prevent a government from making plain its attitude. Much depended upon the wisdom, integrity, personality, and strength of character' of the Minister of Finance arid the heads of the- banks in the country. No government would, in the long run, permit a Central Bank to take up on a serious matter a line of action which it considered inimical to the welfare of the country. It was quite clear, too, that it would be wrong for a government to run to a Eeservo Bank "to raiso the wind" by inflation.

Sooner or later, said the speakc*, they would have to trust to their financiers and the Government to work out a currency standard. The value of gold at present rested on quite a precarious basis. Exactly what reactions a movement in tho discount rate would have on the price levels of commodities in this country ho did not know. The Central Eeserve Bank would decide whether to increase or decrease tho amount of credit available. Whether that would be done by discount or "open market operations was not yet clear. No doubt the subject was being explpre.d..The.situation was. different from that .in. England, where there were millions, of .liquid, securities.

Because of tho pressure of radical groups,, the exasperation of some people with the banks, an ill-advised exchange policy, .and the entry by one bank into the political arena, the stage was set for the Bescrvo Bank. It came into existence before it was really needed, but. the people of New Zealand had to manage their own currency standard here, and on that ground Professor Murphy thought the case for a Reserve Bank a very strong one. Some of the circumstances had merits and others none at all. Trading banks should welcome the Eeservo Bank for the reason that it would keep them o.nt of politics.