SURPLUS CREDITS

Evening Post, Volume CXVIII, Issue 65, 14 September 1934, Page 9

SURPLUS CREDITS

MINISTER'S CLAIM

"NO MORE THAN REQUIRED"

NATIONAL INCOME

The statement that the surplus credits which New. Zealand held in London wore no xnoro than required was made by the Minister of Pinanco (tho Bt. Hon. J. Or. Coatcs) in tho -House of Beprosontatives yesterday afternoon during the course of his reply to the Budget debate.

Mr. Coates said that as the result of .the raising of the exchange the national income had been increased by, £10,000,000. It had been stated that the Government would not bo able -to dispose of the London surplus at £125, but that wa3 purely a matter of opinion and not capable of proof. It was considered by some people who wore competent to'judge that the sterling funds in London were not more than was required, and that tho funds were a strengthening force in New Zealand's position at Home. (The surplus .exchange had also been a great help in the setting up of the Beaerve Bank. "Normally, a newly instituted reserve' bank would by a slow process have to accumulate sterling reserves in sufficient quantity to bo a controlling factor in the credit situation," said tho Minister. "This means thut for some years the. Ecservc Bank would not havo been as strong as would be wished. But as a result of the Government's purchase of sterling and its subsequent sale to tho_ Eoservo Bank, no. trading bank is in a position to compete with it. And yet the members of the Opposition would havo preferred 7 that - the transaction should havo been handled in a different way. "Thero is nothing mysterious in the transfer of the sterling to the Reserve Bank. If anyone offers gold to a bank, ho will receive banknotes in exchange. The bank-notes have been issued against tho gold. Similarly, if one takes a Bank of England note to a bank in New Zealand, one would get nearly 25s for it. This is what the Government has done. We have, in effect, taken to" the Reserve Bank our sterling holdings and received in New Zealand tho right to draw New Zealand currency. With theso credits tho liabilities to the banks have been paid off. Thero is no magic. _We have issuod no money out of thin air. Every .pound notd we received from the Eeservo Bank was represented by value in London, and this valuo resulted from tho sale of. our exports. It will bo mainly used to pay for our imports and pay our debts." FLOATING DEBT. It was interesting to compare , the Australian floating debt position with that of New Zealand. During tho last fivo or six years tho total Australian floating debt had been gradually increasing, and now totalled over £03,000,000. Recent figures taken'from official statistics were as follows:— . ' Morclt3l, March 31l . ■ ' / 1033. 1934. Held to Australia ,' §1.845.000 ' M.250.000 Hold in London . 40,228,000 42,031,000 Total ..... £02,073,000 593.281.000 (AH in Australian' curreuoy.) "This huge amount of over £93,000,000 has been issued to_ finance Government expenditure," said. Mr. Coatos. "The Australian floating debt represents 1 over £14 per head of population as at March 31, 1934. The Eight Hon. J. A. Lyons, Treasurer of the Commonwealth of Australia, stated in his Budget speech that the volume of Treasury bills had, reached its peak and that tho growing amount had been chocked. This is being done by carrying on loan services without recourse to Treasury bills and by funding —in tho year of issue—floating debt to an amount 'equal to that of the deficits. This moans that the growth in the volumo ef Treasury bills . has been checked by greateruse of-long-tofm borrowing and by funding short-term loans into long-term. From November, 1933, to June, 1934,,. £12,650,000 had been funded. NEW ZEALAND'S POSITION. "Now compare the Now Zealand situation. The New Zealand floating debt as at March' 31, 1034, was £22,857,000, and at July 31, 1934, totalled £29,431,000. ■ This was prior to the institution of the Beserve Bank. Most of the Treasury bills outstanding were Issued against sterling funds, and they 'were redeemed without recourse to borrowing or taxation. The sale of the sterling to the Reserve Bank enabled the floating debt to be reduced to £6,147,000 by September 5, 1934. Thero is still some sterling to be taken over by tho Beservo Bank, so that by tho end of this month (September) I expect that our floating debt will not exceed £2,500,000, and this amount will not be held in London, or by the banks or public in New Zealand, but by various Government accounts. Per head of population this is £1 13s; compare this with the Australian figure of £14 per head. Mr, W. Nash (Labour, Hutt): Treasury bills are redeemed out of *the t-ale of sterling? Mr. .Coates: Yes. ' REPLY TO MR. STEWART. A brief reply to • criticism directed nt the Budgot by the Hon. W. Downie Stewart (Government, Dun'odin West) was made by Mr. 'Coates. Mr. Coatea said that Mr. Stewart had stated that it might well be that the farmers had lost nioro than they had gained as a result of high exchango owing to the ill will and irritation that, had been caused. All ho could 'say was if tho farmers had not iroeeived tiny benefit from the raising of the exchange, then God help them. It had been clearly shown that tho raising of the exchango rate had not produced a fall in imports, that it had not, and could not, diminish New Zealand's ability to purchase goods from overseas, and that whole sections of the farming community had been saved from bankruptcy. Mr. Stowart continued to talk about a natural exchango rate, but as a matter of fact there was nonsuch thing as a natural rate. .The Associated Banks had always fixed tho rnte of exchange between New Zealand and London. ______________