RESERVE BANK

Gisborne Times, Volume LXXIII, Issue 12084, 25 October 1933, Page 5

RESERVE BANK

SECOND READING! DEBATE. . MR. COATES EXPLAINS FUNCTIONS. TWO HOURS SPEECH APPLAUDED EXPECTED STATE SAVINGS £O-10,01)0. M (Press Association} WELLINGTON, Oct. 24 Moving tlie second reading of the Reserve Ba.uk of New Zealand Bill, Mr. Coates said that it was similar to the .previous one- The alteration ß contained were improvements to the Bill. Us purpose was the "unified and .disinterested control of currency and credit in New Zealand by New Zealand directors for the benefit of New Zealand. The banks had greatly helped the Government anj were eo-oper-athig on the present measure. Ho expressed appreciation of the attitude of the Chairman of the Associated Banks in presenting a considered opinion on the subject. There was one point of difference between banks and the Government, and that was on the profits of gold, but it had not prejudiced the banks’ consideration of the main question. He had noticed v ery definite evidence of the need for an institution which would fill the gap between the Government and the commercial banks. The banks had been helpful, but there was'certainly a big defect to be remedied. The Central Bank would assist and improve the normal financial operations of the Dominion, the community and the Government, and would be lielpfuf in time of economic abnormality. It would provide cheap and abundant credit in periods of low prices tod would be an influence in restraining speculation and unwise lending in boom times. It bad been asked whether the extra banking institution was necessary and bad been argued that the Government could make the Bank of New Zealand a Central Bank. This attitude was entirely wrong, ll was a defect of the Commonwealth BonkA Central Bank was the banker for other banks ; it could not at the same time :eom>pete with them, nor, in times of crisis, effectively help matters unless its assets were liquid. Liquidity of its assets would be lessened if a Central Bank carried on ordinary lending to the public. Mr. Coates pointed out that in setting up the Central Rank, there "'as no reflection on the trading banks, but the latter were private profit-making institutions. Their man aim. so long •as their business was stable, was to pay dividends to shareholders. They had no conscious policy, which took into consideration the effect of thenunited transactions in the price level. They did not exist for this purpose. A Central Bank would help to make New Zealand more independent of outside control, and. tor the first time, would bring tile Dominion’s currency and credit under control. This control would be exercised in accordance with a clause in tlie Bill which stated: “The economic welfare of Ne w Zealand is to be promoted and maintained.” A Reserve Bank would strengthen the trading banks, because the cash reserves would be pooled, thus giving greater protection to any bank getting into difficulties. The granting of credit would be more flexible with pooled reserves and the Bank's credit policy would be more effective. It would Promote lower interest rates, for the farmers and the commercial community. This was a gain which would lower producer’s costs substantially. For example, £50,000,000 of advances at 5 per c-ent cost in interest £2,500,000 annually. A reduction of 1 per cent would save £500,000 to the producer. Continuing, Mr. Coates said that, at present, New Zealand paid 5 per cent on Treasury Bills, which w a ,s the highest in tile Empire, liven twis was the result of a recent reduction, in consequence ot the Government having brought down the interest charges. Canada paid 3S to 3g per cent on her Treasury Bills ; Australia paid 2} per cent; India 1 per cent and South Africa If- Per cent for fixed periods for bills taken up by the banking world: hence New Zealand could justifiably expect a considerable saving in this sphere. He added that all profits, apart from a small amount (£25,000) going to shareholders accrued to the State, so that any interest the Government did pay woulf] have a reasonable chance if coming back to the State.

The Minister said tluif the four magi advantages of a Reserve Bank

were:— (1) Control of our own monetary •system. (2) Co-ordination of the banking system . (3) Cheaper credit to the community. (4) A saving to the State. He quoted the following figures to indicate the anticipated savings. STATE LOSSES. iNuto lax. x,2oU;UUU. Interest nom investments in cash £6(I,UUU. Loss of income tax from banks • Ld'o , UO(J ■ interest on securities lor .Reserve Bank £37,5011. Total £400,600. These losses were the greatest that would be made. For the purpose or comparison, they might be reckoned at £400,000 STATE. GAINS. In this respect the working expenses had been calculated on tne basis of South Africa’s experience. Bank’s revenue, £85,000. From Government Stock £56,250. From Treasury Bills £22,000From commercial business (say) £3O- - . Total £371,250, less expenses and dividend (£75,000) £296,250. To this would be added.,the State’s share of the profits, (say) £300,000. Saving in interest on Treasury Bills and the bank’s indemnity 000Total £1,040,000. Less State losses £400,000. Net, gain to State £040,000.

At the conclusion of his speech, whieji lasted over two hours, Mr. Coates was applauded. - LABOR’S VIEWPOINT. HOW WILL THE MASSES GAIN ? The Louder of the Opposition said he could see no alternative to the present banking system. He (Mr. Savage) agreed that there was not much wrong with the present system, apart from the manner in which it was controlled. If the Bill was going to do a quarter of the things the Minister had said it would, the bank must be going to be in competition with the other banks. The Minister had said a Reserve Bank would contain machinery to give effect to the Government policy, but he had also said that it must be free from political control. Those statements seemed to contain a slight contradition. He was not going to say however, that Parliament should not have some control over the banking system. In his opinion, Parliaments were still to be trusted. The difficulties being experienced by the world to-day were not due to Parliaments. lie asked whether the Reserve Bank was real)}' going to supply cheaper credit and, even if it was, what would be the use of cheaper credit unless the mass of the people had means to purchase t]ie product of employment—credit. Was it not more correct to say of the monetary system to-day that insufficient money was finding its way into the hands of the mass of the people?

Continuing, Mr. Savage said be wondered whether it was correct io say there was going to be disinterested control of currency and credit. At the present time, the Government bad the right to appoint, and did appoint, four out of the six directors of the Bank of New Zealand and that bank did fifty per cent, rf '.bo country’s banking business. The Government already had more powers than were contained in the Bill so far as the control of currency and credit was concerned, but it was not exercising them. The Bank of New Zealand was in a position to set the pace for the other banks. The Bill would seem to be strengthening the present financial dictatorship. -Although a great body to opinion in New Zealand to-day was asking for quite the reverse of a financial dictatorship, it seemed that the Bill was going to be made an excuse for perpetuating private control of the monetary system. He asked whether it would not be a better thing for the community, if tile State were to own and control the whole institution. All the people of the Dominion would then be shareholders. The Minister had said that the bank would control speculation. He (Mr. Savage) wondered how much control had been exercised by the Federal Reserve system in the United States. So far as Air. Coates' statements bad gone it would appear that the new bank was going to assist in raising prices, without assisting the people to be able to pay the increased prices. Be (Air. Savage) asked wliy provision should not be made for Parliament to control the whole banking system. Then there would be no need for a Central bank. He thought the officials who were running the banks today would be able to do just as well for the Government as for private individuals. He did not wish to reflect on these officials in any way. They had done a good job for those who were paying them. He declared that unless there was a monetary system that would enable anyone, whether lie was a clergyman, lawyer, or schoolmaster, to buy the equivalent of the service that lie rendered ! to the community, there would be no escape from the difficulties confronting the country to-day. He did not see much in the Bill that was going to benefit the people. Twothirds of tlie capital of the bank was to be found by the people through the Government and one-third was to be found by the shareholders, but the latter were to have the balance of power. That seemed to be reversing the position, so far as it related to the Bank of New Zealand, in which tlie Government held onethird of the capital and two-tliirds of the management. He asked whether the object of the Bill was to strengthen the grip of private control on the monetary system of New Zealand. The Labor party believed the State should be master of tlie situation hut he considered the Bill would allow private enterprise to become the controlling force in industry and other activities. AVhen the Labor party took office, it would put its policy into operation if the Heavens fell. It did not suggest that the management of tlie banking system should be conducted from the Cabinet room, hut it did contend that the policy should be laid down by Cabinet. If it were in power to-day, it would not be doing the job from Cabinet room, but it would formulate a policy and would insist on it being carried out. If it were hoc carried out, it would very soon appoint someone else to put the policy into effect. Parliament must exercise its authority over the banking system. There were vast powers in the hands of the Government under the existing legislation, hut they were not being used. The Hon. ,T. G. Cobbe said that it had been stated that a Central Bank would take ’ away the .people’s right to control ourrency, hut that was what it would not do. The bank would be responsible for the maintenance of credit and currency, for which purpose it would have t]ie exclusive right to issue notes. It would be the hanker for other banks and would exercise a restraining influence on speculation r FORM of DICTATORSHIP. Mr. Sullivan (-L.) said that whether the bank would render any real service would depend on tlie pei'sonnel of the directors and the executives. He asked where the Government had obtained its moral authority to impose this legislation on the country and declared that farmers, businessmen and working men had expressed opposition to the Bill. It seemed to ho a- form of dictatorship. The House rose at 10.30.