THE RESERVE BANK.

Evening Star, Issue 21783, 27 July 1934, Page 8

THE RESERVE BANK.

What with Tariff Revision and eleventh-hour legislation concerning (he Reserve Bank Mr Coates has Lis hands very full at the moment.' Tips js to be regretted. The bank opens its doors for business next week, and by the time the latest legislation governing its operations passes botli Houses o/ Parliament the interval permitting people to absorb the information as to the conditions under which it will function will be of the briefest. We cannot congratulate the Minister of Finance on the lucidity of his explanations under this head. Something better is due to the electorates than this, because it is becoming more and more obvious that no inconsiderable liability attaches to the taxpayer in respect of the bank. Yesterday it was stated in these columns that the investing public, because of the way in which the £5 shares had been rushed up to £6 5s on the Stock Exchange, apparently had no misgivings about their security nor about the possibility of depreciation of the bank’s assets becoming a drain on the Consolidated Fund. We admit the inclusion'of the latter phrase to be rather misleading. It is, in fact, the backing of tho Treasury which relieves holders of Reserve Bank shares from' anxiety on such a score. But jn view of last night’s discussion it is obvious that, however confident a person may feel in Lis capacity as shareholder, he has grounds for less confidence in his capacity as taxpayer; while the great bulk of taxpayers, not being shareholders, ha\-e no 5 per cent, dividends to offset their apprehensions as to non-relief of their burden of taxation. Maturing of the liability mentioned above may not be near at hand. In our view of the matter—which wo do not wish to obtrude in any way—depreciation of the bank’s assets is most likely to occur when the attempt is made to revalue our currency—i.e., when the law of supply and demand in the matter of exchange is allowed some degree of freedom to operate. It is a far, far easier thing to slip off gold or sterling than to climb back again. Quite obviously the Government recognises this, and intends to postpone the day of reckoning as long as possible, [f necessary statute law is to be invoked to reinforce the fixing of the rate by the Reserve Bank authorities, in which case it may be possible even more plainly to observe the result when it is sought to make man-made law override economic law.

It is quite possible that the trading banks will shed no tears over the surrender of somh £,‘21 ,000,000 of Government paper in the form of Treasury hills to the Peserve Bank in exchange for the new currency (Reserve Bank notes!. It is true that the trading banks have been charging the Government 5-per cent, interest on this floating debt, but the responsibility of financing the Government in this way by allowing it to anticipate revenue—not buoyant to any degree and extracted from an admittedly overtaxed people—cannot have been either light or even' pleasant, despite the lucrativeness of the business. The trading banks have other spheres of business besides lending to the Government. Mr Coates says he has never defended the rate of interest payable on Treasury bills, admitting that it is higher than the rates charged in other countries, but the banks here would not grant cheaper accommodation. The rate in Australia (2i per cent.) is rather less than halt what the New Zealand Government has had to pay. That fact alone must be both galling and humiliating to the Minister- of Finance, as must also be the fact that the rise in Heservo Bank shares above the price of issue indicates investors’ willingness to accept, less than 5 per cent, for their money, whereas the trading banks decline to discount Government paper at a lower rate. However, be th the Treasury end the taxpayer will unite in hoping that the Reserve Bank will he less laniant in its financing of the Government. Possibly the arbitrary terms on which the Government acquired from the trading banks their gold reserves and backing for their currency had something to do' with the price it had to pay the banks for accommodation. Mr Wright last night made one more effort to extract from Mr Coates the amount the pegged exchange has cost New Zealand, adventuring £5,500,000