NOTE CIRCULATION.

Hawera Star, Volume XLVIII, 24 June 1924, Page 8

NOTE CIRCULATION.

ROSITION J IN NEW ZEALAND. Air A\ illiam AA'atson, at Friday’s meeting of the Bank of New Zealand referred as follows to note circulation: During the year the note circulation of onr Bank has averaged about £‘3,92(),()00, the highest figure reached being £4,880,668, and the lowest L3.6bd.570, whilst our legal right of issue is about £10.500,000. AYe have, therefore, an ample margin of currency a\ ai la bit to meet the ordinary requirements of our customers and to provide a substantial reserve for an emergency. Hie banks in New Zealand issue notes up to the value of the coin and Government securities which thev hold iii New Zealand, and, further/under certain conditions, against Government securities held in London. These notes are legal tender, and are the first charge _on the assets of the banks. There is, however, a limitation to the right of issue in that, no matter how large the amount of securities held may lie, the circulation must not exceed three- times the amount of the coin. Tlie coin held by the six banks doing business in New Zealand has, for the past eight years, ranged between L, ,000,000 and £8,000,000, and has for tile past year been something more than £/,800,000. The securities held in New Zealand amount to about £5,000,000.. If, therefore, the limit of issue of all the banks 'operating in New. Zealand were fixed by the holdings in New Zealand of coin and securities, it would be about £13,000,000. If, however, the permission to issue notes against securities in London were availed of (and I have 110" doubt that ail the hanks could -easily comply , with the necessary conditions), the limit would be increased to about £23,000,000. As a- matter of fact, the highest point which the total, circulation has ~ev©r reached was £8,250,000 in December, 1920, and since that- time it has gradually come clown until, at the end of March, last, it was £6,600,000. Owing to the incidence of the businets of the various banks, it constantly happens that some of them are holding the notes of other banks. On an aveZ age approximately £500,000 is thus held, so that the notes in the hands of the public are less by that amount than the figure quoted. It will be seen from these figures that thq New Zealand hanks have alv, ays, even during periods of considerable monetary pressure, been in a position to supply the currency requirements of the country with the greatestease. . if, at certain seasons of the year-, owing to the nature of its business, the notes of other banks accumulate in the bands of a particular bank, it has the option of holding them in its cash until the turn of events changes and it requires to make use of ,them in its settlements with the other hanks, or, if it holds more than it .requires for this purpose, of specially arranging with the other banks to redeem the surplus. There- is thus the necessary elasticity m the currency to meet the requirements of trade, commerce, and production, and. at the same time, the’ necessary -provision for the (removal of redundant currency when there are more notes iii circulation, i.e., notes held by the public and notes held by the banks, tfyan the needs of the community call for. It may lie that some of those whom' I address, contrasting the present New Zealand circulation of approximately £6,000,000 with the issue before the war (about £1,700,000), may feel that the notes at present in ‘circulation represent a measure of inflation. It must die .remembered, though, that prior to the war the currency, of the "country consisted not only of the note issue, but also of a large quantity of gold which was constantly passing from hand to hand. This coin probably amounted to something like £2.500,000, which, when gold ceased to be issued,, came into the coffers of the banks. The currency in ciiculatmn was, therefore, somethin'* over £4,000,000. - " Bearing in mind that there has been an increase of population and trade during the past 10 years, that the cost of the necessaries of life has increased, •and that other important changes have occurred, the increase of about 50 per cent is hardly more »than might have been expected to .take place during the period.