RESERVE BANK

Gisborne Times, Volume LXXIII, Issue 12080, 20 October 1933, Page 5

RESERVE BANK

v house discusses bill,

ALTERATIONS from original ■ ■ • ' MEASURE.' ■ ; r '• NOTES FOR LESS - THAN TEN SHILLINGS. ' INCREASED ACCOMMODATION FOR STATE LOANS. SOLE RIGHT OF NOTE ISSUE DELETED. GOVERNMENT TO BE REPRESENTED ON DIRECTORATE. (Press Association! WELLINGTON, Oct. 19. The Reserve Bank of New Zealand Bill was . introduced by GovernorGeneral’s message this evening, and urgency was accorded the first reading. Replying to Mr. Fraser (L.) Mr. Julies said the second reading will he'/aken on Tuesday. Mr. Fraser asked Mr. Coates if be would explain to the House the main points of difference between the Bill as now introduced and the measure introduced last session. Mr. Coates said there had been no major changes in the working of the Reserve Bank, but there had been some alterations in its powers and in the constitution of the board of directors. One small * alteration made changes in the rules of the bank .subject to the approval of the Governor-Gcneral-in-Council. An important addition limited shareholding to a maximum of 500 shares per person. Another clause changed the rate to be paid on Government securities (which might be in the reserve fund of the bank) to the current rate, instead of 5 per cent. The Bill proposed, said the Minister, to make it lawful, with the consent of bt-he Governor-General-in-Council to issue bank notes of a denomination of less than ten shillings. Another clause changed the accommodation that might he granted to they Government from one-third to o’AfUialf the estimated revenue for the year. The clause relating to the issue of bank notes bad been altered, continued Mr. Coates. Formerly it bad been proposed that the bank should have the “sole right” to issue notes. It was now proposed to omit the word “sole.” Another change ensured that gold held by the banks on account of others should not be taken over by the Reserve Bank, It was proposed that the profits derived by the Reserve Bank from the sale of gold transferred to it by any trading hank should be credited to the public account. In the previous Bill, in the event of non-agreement between the governor of the Reserve Bank and a trading bank as to the apportionment of such profits, it was to be referred to arbitration. This had now been omitted.

It was previously provided that at some future time, to be determined by the Goveronr-General-in-Council, the Reserve Bank should effect exchange with sterling at a rate not varying from parity by more than 30s per £IOO. This had now been outfitted, as it might have seemed an express direction to the Reserve B In to pursue an extremely deflationary policy to achieve parity with sterling. In an unstable world such a direction would be folly. In accordance with the report of

the gold delegation of the League of Nations, and the recommendation of the World Economic Conference, the minimum reserve of the Central Bank had been altered from 30 to 25 per cent, said the Minister. This would allow greater flexibility. Another alteration in the interests of flexibility, allowed the Minister of Finance a suspending power over the obligation of the Reserve Bank to raise its discount rate when the reserve fell below the prescribed minimum.

CONSTITUTION OF' DIRECTORATE

Dealing with the constitution of the board of directors, Mr. Coates said that in the first Bill it was proposed that the shareholders should elect five directors and a governor and deputy-governor, the State having no power of nomination whatsoever. In the present Bill the Secre-te-jy of the Treasury was given a place on the board of directors, but had no voting power. In addition the State was to appoint three directors, while tire shareholders appointed four, two of whom were to represent farming interests, and two to represent industrial or commercial interests. The governor and deputy-gov-ernor were to be elected by the shareholders, with the approval of the :Governor j General-in-Council. Tn making this change the Government felt that there could be no valid argument against representatives of the people having strong representation on the directorate of an institution of major national importance, Continuing, Mr. Coates said another clause made the constitution of the executive committee more elastic. It was also proposed to altet the cumulative dividend from 5J to 5 per cent. Other alterations included strengthening the inspectorial powers of the Reserve Bank, a provision that no trustee should be given control of more than 500 shares, and other changes mainly of a technical nature. a, 'OLD RESERVE TO' BE TAKEN 'OVER AT £3/17/10 PER OUNCE Replying to interjections, Mr. Coates said gold from other banks taken over by the Reserve Bank would be taken over at the book VclluG Mr Wright: What does the book value mean? Mr. Coates said there was a difference between the hook value and the market value. The book value would be £3/17/10 per ounce. Questioned as to the-salaries of directors, Mr. Coates said the amounts were not specified m the Bill. STATE CONTROL- WANTED. Mr, Poison (C-) expressed the opiijk ! ,i that the control of the bank sMUAibe in the hands of the State

and not in the hands of the shareholders. Provided the Bill teas based on service to" people, and not on profit to shareholders, he was prepared to -assist the Government with it. He agreed with the principle of share capital so long as control by the State was predominant. The State should be given predominance in the directorate, and he considered the office of governor should be a State appointment, rather than an appointment by the shareholders. He was not prepared to allow the control of the bank to pass out of the hands of the State. WHO WANTS CENTRAL BANK? Mr. Langstone (L.) asked wliat was the need for a Central Bank in New Zealand. He declared that central hanks had not been successes in other countries. Mr. Wright (C.) said lie agreed with Mr. Langstone. The House had never been told who it was who wanted the central bank. In his opinion it was to be a smoke-screen to cover up exchange manoeuvres. Mr. Broadfoot (C.) said that in his-opinion the main point should be the predominance of Government representatives on the directorate. Mr. Armstrong (L.) said the sole object of the Bill was to enable, the bank to control the- State. He declared that the Dominion’s finances were not going to.he controlled by a bank set up within Now Zealand, hut by international financiers from the other end of the world.

WHO ASKED FOR IT? MR. COATES REPLIES: “THE GOVERNMENT.” Replying, Mr. Coates said that members had inquired Who had asked for the Bill? The answer was that it had been asked for by the greatest organisation in the country—the Government. The Government believed it would be impossible to meet satisfactorily the future requirements of the country unless the necessray machinery were set up.

Replying to an inquiry as to how the Bill would stabilise the monetary policy, Mr. Coates said that that was a matter for Parliament. Parliament must at all times control the country’s monetary policy. Mr. Samuel: “Is the bank to be linked up with the Federal system of Reserve Banks?”

Mr. Coates: “It will he one of the Reserve banks in the British Empire, but it will in no way be linked up. The Government would not agree to bind itself to a monetary system that might he adopted in another country. Replying to another interjection, Mr. Coates said that the bank would he a New Zealand institution composed mainly of New Zealanders. The Bill was read a first time.

HOW OFFICERS WILL BE

appointed

The Reserve Bank of New Zealand Bill, read a first time in the House, sets out that the first Governor and Deputy-Governor are to be appointed by the Governor-General-in-Council for a term of seven .Years. Thereafter, these officers are to be elected at a general meeting of shareholders for a term of seven years, but the election must he approved by the Governor-Geneval-in-Council.

Of the directors, the first to be appointed by the Govcrnor-General-in-Council, one shall retire on July 31, 1936, one on July 31, 1938, and the third on July 31, 1940. The member to retire in any year is to be determined by the Board by ballot, hut members will retire in rotation. Subsequently, all directors appointed by the Governor-in-Couneil are to hold office for five years. No person who is not a shareholder can be elected as shareholders’ director. The first shareholders’ directors shall he appointed by the Governor-in-Council and one will retire on June 30, in each year, starting f r om 1936. As each director retires a new director shall be elected fop a period of five years by the shareholders at a general meeting. Not more than one member of the Board shall, at any time, he a director of any other bank carrying on business in New Zealand or elsewhere. Every member of the Board is eligible for re-appoint-ment or re-election upon retirement. The original Bil] provided that the aggregate amount of fees paid to directors other than the Governor and Deputy-Governor, should not exceed £ISOO in any year. The new Bif* increases the amount to £4OOO, The salaries and allowances to he paid to the Governor and Deputy-Governor are now 1 to he fixed by the Governor-General-in-Council. The amount of .salary or allowance paid to each or these officers shall not he computed by reference to the earnings of the bank, nor shall either he remunerated wholly or partly by any form of commission.

As was provided in the first Bill, tile original capital of the Bank shall lie £500.000 in shares of £5 each, which shall be offered by the Minister of Finance at par for public subscription in New Zealand.. MESSAGE TO LONDON MR FORBES REPLIES TO comment (tt.P.A. by Elec. Tel. Copyright) (Received Oct. 19, 9.10 p.m.) LONDON, Oct. 19. Financial paper.s, (without comment, give prominence to ia cable gram from Mr Forhejs to Sir T. Wilford detailing the constitution of the directorate of the Central Bank in reply to criticism published here.