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Grey River Argus, 12 May 1931, Page 6

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( CHRISTCHURCH, May 9. I The wheat arop statistics have caus- | cd a great deal of discussion, as figures [are in advance of expectations. How ' ever, at the moment market quotai tions have not been affected, and r®- | main as at the time" of tile mid-week ■ report. , Grain aii3 produce markets remain [fairly quiet. The potato section is j suffering from a severe relapse, ana [values are lower to-day than cj .my eoTTesponding peffod for a great many I years. The quotation for prompt has ' fallen to 65/- f.0.b., equivalent to £2 5s i a ton on trucks. For July and JuneJuly delivery, potatoes have been sold ajt 70/- f.o.b. ' For July-August-Sep-tember delivery sellers demand £4 per ton f.0.b., but there are buyers only at £3/17/6. 1 THE NIEMEYER REPORT. I I The full text of the report furnishled by Sir Otto Niemeyer on banking ‘ and currency questions has not been I made All that has been made public at the* time of writing is that the report recommends the form- ; ation of a central hank This, in itI self involves a big change Tn New 'Zealand hanking practice, but it is [impossible to say how far-reacMng the change may he until it 0s seen what form of central bank Sir Otto Niemeyer proposes. There are certain general principles applying to central banks. A central bank is intended to have* the sole right of note issue, thus ' controlling! currency. It should be in close touch wpth the Government of .’Hie day. It should not be subject to ‘domination by trading banks or comImercial interests, and to guard against profit-making motives its divid--1 ends should be limited. It should not undertake the general commercial . bankfng, but should he a bankers ’ ! bank. I When the International Financial J Conference met in Brussels in 1920, ’one of the resolutions passed was that ‘‘in countries where there is do central hank of issue one should be established. ” Tn the. last ten years the advice of the Brussels conference has been widely followed, new central hanks have been formed, and many existing hanks have been drastically overhauled i Tn Australia, the Commonwealth Bank combined in certain respects the role of a central bank and a commercial bank, and this arrangement is not considered altogether satisfactory. Thus the recommendations of Sir Otto , Niemeyer, of the Bank of England, who recently investigated tho banking, | currency and exchange problems of New Zealand, and whose report has ' arrived from England, that the Dominion should establish a central bank will come as no surprise to those who have followed the trend of bankling and currency in other countries during the post-war period. His proposal to recast the whjole fabric of Now Zealand banking simply means (that he considers that this country should step into line with a worldJwidc movement. - The banking system in New Zealand at present, like- that of Canada and that of the United States before 1907, is decentralised, and afi has been pointed out by Kisch and Elk-in in their book, “CentraT Banks,” there are serious drawbacks to this system, as it involves a dividend responsibility and a lack of leadership. Whether there is a gold standard or whether there is not, tho control of the credit and monetary system involves the solution of many problems of policy and detailed administration. But if there a.re many issuing authorities, there cannot be .one controlling force to direct the ’monetary policy of the country, and this is bound to be a source of weakness, especially at a time of serious crisis, when a well-de-vised and coherent plan of action is essential. One. would not say that our position is analogous to that of the United i States during! the economic crisis of 1907, but there is no harm in illus- ; trating the position there at that time, because the New Zealand system of to-day has many points of similarity. There was in the United States at that, time a larger number of national hanks, each with the right of , note ispue, but their interests rwcre predominantly local, and there was little co-operation between them (New Zealand, of course, bias an association of its banks.) The* leadership that alone could have dealt effectively with the problems of that crisis wpre lacking, and one aspect of this lack of ■leadership was seen in the handling of the gold reserve. There was at that time mmre gold in the United States than in any other country in the world, but. each bank clung jealously to its own holdings. The gold was consequently ineffective since it was scattered, and could not be brought to bear at the. points at which it was most needed. The concentration of reserves and the control of the money market, imperative for the mitigation and avoidance of a financial crisis, demand a central or reserve banking organisation. Such an organisation, Islanding behind the commercial banks is able, by use of the reserves held against tho contingency of a crisis, to bring support to any threatened point and to avert the loss of confidence, the continuance of which is necessary for the stability of any credit system. Thi s was a conclusion that the United States authorities drew from the experience of 1907, and the Federal Reserve system was devised in order to prevent the repetition of such a catastrophe. Tn adopt/’ng'Uhis system America simply followed the bank ing technique of England, where the Bank of England had long been the central bank of Great Britain DUTIES AND FUNCTIONS. In view of the fact that England hag led the world 'in banking technique, and that Sir Otto Niemeyer who is now recommending a change of system for New Zealand, is connected with the Bank of England, it i s interesting to note the thirteen proportions laid down by Sir Ernest i Harvey, Comptroller of the Bank of

■ England, concerning the functions and j duties of central banks. There are:— A central bank should possess tkc exclusive right of note issue. | A central bank in its management and policy should ho free from the 1 influence of politics. A central hank should be entrusted with, tllo entire banking business of its own country. A central bank should be the banker of the trading banks and should act- as a settling agent for clearing differences between such A central bank should not ordinarily compete with the trading banks for general banking business. A central hank should ensure to' tho public the provision of adequate bank-/

ing facilities on reasonable terms \ ,'A cetatfraT bank /should n.olt fake moneys at interest on its own" account. A central bank should quote publicly the rajte at which it is prepared to discount approved bills, and should publish at regular and frequent intervals a clear statement of its position. The assets of the central bank should be of the most liquid character ( possible. A central bank should not draw or accept bill s payable otherwise' than on demand. A central bank should not engage in trade, or have any interest in any commercial, industrial or other undertaking. A central hank should have no branch outside its own country, bnt < may have agencies abroad.