READERS5 OPINIONS

Gisborne Times, Volume LXXXII, Issue 12527, 12 April 1935, Page 3

READERS 5 OPINIONS

BANKING SYSTEM. (To the Editor). Sir,— My best thanks. are due to the N.Z. Wd-fare League' for the courtesy of theii"j’eply to my last letter. In my letter I .stated that the NUZ'. Reserve Bank purchased £4,000,000 gold, issued £9,000.000 notes and obtained £20,000,000 sterling exchange with a capital of £SOO 000 plus a. Government guarantee of £1.000,000- In other words it purchased .£29 10 with a £lO note. Their summing up of their' own reply was that it'<was art ordinary business transaction -on a large scale—there was no creation of credit out of nothing. .Phew! an ordinary business transaction—l" would like to know their -idea of an extraordinary one. A transaction of that kind in business circles where they deal in real wealth wm*d carry a. harder word than "ordinary” So .ranch for the bankers’ monopoly the League are strenuously doifendfjng'.i (Their antipathy to the expression ‘out' of fidthjing” -ifi dist-innhly tfunny.JThe McMillan report “lan authorifathve utterance,” uses the term "out of the blue.” Another authority I vead lately also refrains from this obnoxious expression and savs “banks found their credit under the gooseberry bush.” I would earnestly commend either of these expressions out of courtesy to Leaguers.’ tender feelings.

I was also interested to note my name used in illustration showing that if 1 deposited ten sovereigns in a, hank I would be credited with that amount. Of course 1 would, but they refrained From stating that I would only get Reserve notes in return, but on those ten sovereigns the Bank could' issue £3OO of sterling notes—a credit of £290 from "under the gooseberry bush.”

Might I give the League a tipfree, gratis and for nothing? D° not quote sovereigns as an i,lustration —use notes—they do not pyramid so high for credit purposes and so are less likely to make the public think furiously. Do you see my point? Had you quoted note* instead of sovereigns the poor, downtrodden hank could only issue £9O credit on the deal. But to return to the League’s reply. They only skimmed' the surface. Let us dig deeper. N.Z. exports 1933-34 came to £37.000.000'; imports £21,000,000. interest £5500,000, total £29,500.000; balance £7,000.000. The Reserve Bank holds over £25.000,000 or £17,500000 more than there should have hecu. Who owns this? }The Government mcHemniffied the banks against, exchange loss on surplus sterling credit. The £7,500 000 actually representing export credit was handled by trading banks before the Reserve Bank took over, leaving £7,500)000 still unconverted to N.Z. currency. The Reserve Rank pa'd the Government a cheque for approximately .£22,000,000 and the Government then reduced its Treasury bits. Thus the Government got out of a debt*of £22,000,000 and the Reserve Bank now has £17.500000 of sterling credit in London and the trading banks £7.500,000, all acquired from “under the gooseberry bush.” This illustration is proof that exchange or no exchange, any surplus realised by N.Z. exports invariably becomes the property of the Banks, that is. they acquire the value of that surplus which had no existence in money nnti] the banks advanced against exports on internal credit from "under the gooseberry bush.” The Reserve Bank is now in the position that it can import goods worth £17.500,000 and sell them here, plus exchange for £22.000,000, extinguish the credit in London and acquire for itself £22] 000,000 in N.Z. currency. I think this great business. -. The League thinks it an ordinary business transaction on a large scale. 1 leave your - readers, Mr. Editor, to draw their own conclusions. —I am, Yours etc., H. DANIEL