STATE PAYMENT TO RESERVE RANK: MR NASH’S DEFENCE

Gisborne Herald, Volume LXXV, Issue 22822, 17 December 1948, Page 4

STATE PAYMENT TO RESERVE RANK: MR NASH’S DEFENCE

(P.A.) WELLINGTON. Dec. 17. A reference by the Leader of the Opposition, Mr. S. G. Holland, in an address at Christchurch to the alleged inflationary effect of the Government's action in connection with the adjustment of accounts by the Reserve Bank, rendered necessary by the decision to bring back New Zealand’s rate of exchange to parity with sterling, was the subject of comment by the actingPrime Minister, Mr. Walter Nash, last night. Mr. Nash said that without personal comment he would quote an article by Professor Murphy in the current number of the Financial Times. In the article referred to Professor Murphy discussed the probable effect of exchange appreciation, and concerning repayment to the Reserve Bank he said: “The amount of loss through reversion to sterling parity incurred by the Reserve Bank, or for which the bank or the Government is responsible, was over £21,000,000 —a very large sum indeed. 1.0. U. To Fill Gap “The 1934 Act said that the Government should pay the bank an equivalent amount. This obligation has been interpreted by issuing an equivalent block of Government stock to the bank. In effect, the Government has filled the gap by giving the bank its 1.0. U. “The rate of interest on this stock is immaterial, since it is paid by the Government to the bank, and comes back to the Government from the bank as part of its profit, annually payable into the consolidated fund. “This transaction,” continues Professor Murphy, “appears to have been neither inflationary or deflationary, and it will not be, as long as the bank refrains from disposing of the stock or its equivalent on the investment market.” “Whatever his qualities, it is unlikely that anyone would suggest that the experience and knowledge of Mr. Holland exceeds that of Professor Murphy on this particular subject,” said Mr. Nash. “The general report of his address was interesting reading, though some of the assertions made would not bear close examination. “But I am sure that the mind of our people is entirely absorbed by the spirit of Christmas and everyone seems so happy that circumstances cannot be so very bad, and I hope that Mr. Holland and members of the National Party, the Labour Party and all citizens will have a very happy Christmas, and that they will return to work in 1949 invigorated and refreshed so that we can make it the best year yet for our people and country.”