RESERVE BANK GOLD

Evening Post, Volume CXXVII, Issue 40, 17 February 1939, Page 10

RESERVE BANK GOLD

BASIS OF VALUE

A POSSIBLE WRITING-UP

The steps recently taken in revaluing the gold stocks of the Bank of England have focused attention upon the possibility of similar action by the authorities in New Zealand (states the "New Zealand Herald").

The gold holding of the Reserve Bank of New Zealand at the date of the latest return is shown at £2,801,791, the amount having remained steady at this level since 1935. In that year the bank's average holding of gold was valued at £2,859,000, compared with £4,352,000, the value held in September, 1934, when transfers of gold from the trading banks were completed soon after the inauguration of the Reserve Bank.

This gold was purchased from the trading banks on the basis of £3 17s IOJd, New Zealand currency, a standard ounce. Between September, 1934, and April, 1935, gold of a nominal value of approximately £1,500,000 was sold at the market price of over £7 sterling an ounce, the transactions realising a profit of about 100 per cent., which, in accordance with the Act, was credited to the Consolidated Fund.

If the bank's present gold holding of £2,801,791 were written up to the current price of gold there would be an equally large paper profit. As sovereigns would be worth in New Zealand today, were their export permitted, something over £2 apiece, the new valuation would be at least £5,603,582.

Such a revaluation would be one method by which the Reserve Bank could substantially increase its reserve against its note issue and other demand liabilities. This the bank, by law, is required to maintain at not less than 25 per cent., although at the written request of the directors the Minister of Finance is empowered to suspend this requirement for a maximum period of 30 days, which can be extended in response to further requests by periods of 15 days at a time. In the bank's last return' issued last week the ratio had fallen to the record low point of 25^)74 per cent.