MONETARY POLICY

Evening Star, Issue 21825, 14 September 1934, Page 12

MONETARY POLICY

Report of Committee Presented

Gold Standard Rejected

Measures to Control Booms and Slumps

Mortgage Board and Board of Works

Devaluation of Pound at 125 Rate

The report of the Monetary Committee was presented to the House to-day. It emphasises that national interests rather than quest for profits should be the motive of the banking system, and condemns the “ exorbitant ” rates of interest charged by the banks on Treasury bills, welcoming, therefore, the establishment of the Reserve Bank, which-, it considers, should control stock and station agents engaged in deposit and exchange banking. It recommends that overdraft rates for first-class accounts should bo reduced to per cent, with maximum of 5 per cent, for other accounts; that the bank charge for keeping accounts should be reduced from £1 to 10s.

It rejects the gold standard as a basis, recommending that gold reserves should be exported and converted into interest-earning assets.

Other recommendations are the amalgamation of Government lending departments, and the inauguration of a Government Mortgage Board; a Development Commission or Board of Works to co-operate with the Government, local bodies, and the banking system to mitigate some of the effects of booms and slumps.

Finally, it advocates that the New Zealand pound should be devalued at the 125 rate, but a swing of 5 points on either side should be permitted in order to control the internal price structure.

Generally, the report finds no substantial defect in the dominion’s monetary system and that the originating causes of the depression are non-monetary.

In a dissenting report Mr W. D. Stewart concludes that, because of the establishment of the Reserve Bank, it would be unwise to experiment with any new monetary schemes; and that it is not credit that is Jacking, but adequate markets overseas. He considers that, by inference; the report advocates Socialism and socialised banking.

A further memorandum of dissent is signed by the three Labour members and Captain Eushworth, who contend that the associated banks, and now the Reserve Bank, arc the instruments of-the Bank of England. They urge that when advances bring money into circulation it should not create a debt, and that credit expansion should be limited only by the volume of the consumable goods produced and desired by the people.

The committee was composed as under: —

Mr J. A. Nash, Mr A. J. Murdoch, Mr J. N. Massey, Mr F. Lye, Mr C. 11. Clinkard, Mr 11. Holland, Captain H. M. Eushworth, Mr F. W. Schramm, Air J. W. Munro, Air F. 'Langstoue, Hon. W. Downie Stewart.

SUMMARY OF REGOMMENDATIONS

the Reserve Bank; the position of other institutions taking deposits should also be considered, Stock and station agents are banking institutions, and have in the past materially affected land booms by their competitive activities.

BANK RATES CONDEMNED DOUGLAS CREDIT SCHEME SEJEGTEO The report of the committee reviews ho main aspects of the monetary and inking situation of the dominion, inhaling the institution of the Reserve Hank; it traces the effects of the many arhomes put forward; and in particular ■cals with the proposals advanced by Major Douglas and his adherents; in a ipecial section it discusses the exchange ate adjustment and its future. The report affirms the paramount uithority of the State in monetary matters, and emphasises that the serving of the national interests, rather than the cpiest for profits, should he Tie motive of the banking system. It condemns the exorbitant rates of interest charged by the banks on Treasury bills. These rates were £5 8s 9d per cent., and more recently 5 per vent, when other dominion Governments were paying far less—e.g.. India 1 per cent., South Africa II to 2J per vont., and Australia 21 per cent. The establishment of the Reserve Bank of Xew Zealand is therefore welcomed. As the state appoints two-thirds of the directorate of the Bank of New Zealand, the State should use its power of appointment to see that profit-mak-ing is subordinated to the end of public welfare. Stock and station agents engaged in deposit and exchange banking should be controlled by

The overdraft rate for first class accounts should be reduced to Si per cent, with a maximum of 5 per cent, for other accounts. This is necessary in present circumstances to assist in the revival of industry and further to reduce overhead charges. The hank charge for keeping accounts should be reduced from £1 to 10s, and the internal exchange on cheques should he reduced, the total reduction being equal to the relief of note tax and income tax owing to the setting up of the Reserve Hank. It is noted that consequent on the last increase in note tax, the banks doubled their bank charge. The report recommends that the system of hank taxation remain unchanged. The gold standard is rejected as a basis for the monetary system, especially as New Zealand has evolved away from it. Hence gold reserves should be exported andconverted into interest-earning assets. To ensure a unified and consistent lending policy and to bring the mono tary system further under centralised control and to eliminate overlapping. Government lending departments should be amalgamated. A Government mortgage board should ho constituted to take over the long and short term loans which are at present administered by the Lands Department, the State Ad vances Office, and the Rural Intermediate Credit Board. This mortgage hoard should also investigate the possibility of adjusting mortgage charges to farm returns, ami also ensure an even fiow of income to the mortgagee. Mortgage bonds of the long-term amortised type are reeo.tn mended, with interest adjusted to current rates at five-yearly intervals. A development commission of hosrd of works should be set up to dovetail public works and co-operate with the Government, local authorities, and the banking system to mitigate some nf the effects of booms and slumps. The New /calami pound should be devalued at the 125 rate in the interests of certainty and economic .ueow-rv lint a swing of 5 points on either side should be permitted in order to control the internal price structure, the exchange rate being the most potent instrument of monetary control. The Reserve Bank should quote a “forward ” exchange rate to safeguard importers. For _ the purpose of open-market operations, a short-term money market should he built, up, the Reserve Bank Act to he ammuled to make this more •isy to attain. For cheaper and more efficient financing of production, trade and agricultural bills should he encouraged in place of overdrafts.