A NATIONAL BANK FOR NEW ZEALAND.

Hawke's Bay Herald, Volume 11, Issue 819, 19 January 1867, Page 5

A NATIONAL BANK FOR NEW ZEALAND.

:\7 '•?%;' ;|c? "(^bm'th'&^^e^j" January 5.) i^^p^Mtiß/Bx 1 ! has been placed in our hands o^ini|^^riii: of a;letter to' the Governor and i /y!oJßaffim:of the Assembly which cannot fail vi, to' s%&s attention, The '!r autfibr isva> gehtleinan who has taken no parfc inpoUtical life in New Zealand, and yrho ii jprobably only known to the public of theppionylby one or two letters which have appeared under his name in the Lyttelton Times, And it is a matter of great satisfactioa to find that there are men, outside oti;he list of our public men, who are able iihd -wiliing to afford such valuable advice & that which Mr. Broadfoot'a pamphlet contains. The object of the letter is to advocate, the establishment of a National Bank for the colony, holding the same position, enjoying the same privileges, and doing the same work for the colony, as the Bank of England occupies and does for the United Kingdom. We may first remark that the writer displays throughout a firm faith in arid, a full comprehension of the true principles of the subject on which he writes. And this is the more important because a class of writers of, no < mean influence have arisen; in modern times, who, blinded and dazzled by the magical effect of credit as an instrument of commerce, attribute to it a -character which it does not possess and powers which have no existence. Mr. Broadfoot holds the fundamental truths that the sole 'value of the bank-note consists in its convertibility, and that the paper currency 'of & country is -a matter solely of State: concern. He sa^s:— "It has been stated, and most truly, that the first object of currency laws is the convertibility of the bank-note. The honor and honesty of a Government, the convenience and security of a people in their daily transactions, are alike involved in this.' The Government which permits the circulation of paper as a currency is bound, so far as law can effect that object, to see to its convertibility. The bank-note is the mere representative of the gold coin ; and if for the sake of convenience and economy it be permitted to be issued, it is imperative that it should have, as far as it is possible that the shadow can have, the reality of its substance. The coin which it represents bears the image and superscription of Caesar, and if the bank-note, its paper representative, be permitted by Csesar to perform the functions of money, it seems difficult to imagine on what principle it can be divested of Caesar's guarantee also. Experience has proved that no currency consisting of the paper of private individuals or bodies can ever attain that character or degree of security which it is essential to the public interests that its currency should possess. In times of quiet and prosperity, the notes of private banks are accepted, and pass from hand to hand freely without question or concern. But whenever a strain occurs, so to speak, on their credit in times of difficulty and distrust,' they are rapidly exchanged for gold, or for notes which have the guarantee of Government. No amount of private wealth Justifies the use of the promissory note of its proprietors as currency by a country, as the country having no control over the uses to which that wealth may be put, it is. manifest that it may- be either for a time partially or altogether lockedup in one speculation or another or partially or altogether lost. In England this principle is becoming understood, and the private bank-note circulation rapidly passing away. Its inutility as currency was abundantly proved during the late panic, when, notwithstanding the graat demand for.increased currency on the part of the public, the amount of the private bank-note circulation was contracted to the extent of £1,000,000. In Scotland there is still a remaining prejudice in favor of their local circulation, 1 but this arises more from babit than reason, and that conservative feeling of the country towards whatever it looks upon as national. It is nothing in favour of a private bank note circulation to be told that the proprietary of the Bank is wealthy, and that although the bank may become insolvent its notes must be ultimately paid. The public accepts the bank note in place of coin, and has no right to have the risk of the stability of the bank-note superadded to its other risks ; it has quite care enough in the ordinary conduct of its business transactions, without having to look to that which it is the duty of the Government to . secure for it ; nor does it by any means follow that in the <:ase of the failure of a private Bank of Issue its notes will be paid. If the bank be chartered, or it be registered under the -"Limited Liability Act," there is very little chance, indee*d that the holder of the insolvent bank-note will obtain more than a fractional dividend ; and even with unlimited liability on the part of the proprietary, it requires a very wealthy one indeed to secure the ultimate payment of the note, tosay;nothing of the loss and inconvenience to which the unfortunate holder is subjected. The currency of a country ought to be as stable as the country itself. A dishonoured currency is a disgrace to a country. It may be thought by some that it is superfluous to reassert these axioms of political economy; but we have daily experience, not only in letters which appear in newspapers, but also in more permanent productions, that there is a large class of persons who have come to think that credit possesses an inherent power in itself, independent of the intrinsic wealth which it professes, to represent. We have recently seen it argued in a work on banking that exchangeability is the sole test of value, and therefore that a one pound bank-note and a gold sovereign, both being exchangeable for, the same goods, are of equal intrinsic value. And it is not to be wondered at that; the .writer- should at last arrive at the conclusion that ." credit is capital" It gives us confidence ' in Mr. Broadfoot's views- to find that he is not led away by these phantasies; but adheres to the doctrines which have been reduced to axioms v by all the great writers from Adam Smith downwards ; r who have converted political economy in to a science. , : Mr. groadfoot shows us what a National Bank woukT'do for New Zealand by sketching in, a -few^ words what it has dobe for „'■ England..^ We entirely agree in his conJ.. 'clußion;/butat.the same time the parallel ;. m'ustnot be > too^closely drawn. When the : ' JBimis^of England, . was .established towards. ; ol^the seventeenth- century, the ;^|^ifclepry of -banking was little . understood,

and still less was it reduced to practice. So far as we can remember there were but two or three Banks in England and those only of recent formation. Paper money was little used except in the form of foreign bills of exchange* and the public at large was entirely ignorant of that wonderful machinery by which the savings of one-half of the population are attracted into channels from which they are again distributed to set the industry of the other half in motion. ■ We live now in days when Banks are an essential part of the civilization of any country ; and the establishment of a Government Bank in the midst of a world of bankers and depositors and discounters and borrowerg and lenders, could hot be expected to have the same enormous influence which the Bank of England had, when it was started in a country to which the whole of such machinery was a comparative novelty. The Bank of England brought down the rate of interest on Government loans in two or three years from 25 per cent, to 5 or 6 per cent. We cannot expect to see that repeated. Still we can understand what a National Bank would do for the colony. It would place the paper currency beyond reach of doubt. No one can say that our paper money here at present is in a satisfactory state. All our Banks, except the Bank of New Zealand, which issue to any extent are Banks having numerous branches all over the colonies, and their solvency does not depend upon the state of this colony, nor on the arrangement of their affairs in New Zealand. Entirely foreign causes, • independent of this community altogether, might involve any of them in difficulties which might fill New Zealand with disaster. ! There has been no collapse — no doubt even hitherto. JBut the history of the Agra and Masterman's Bank shows us that in a severe crisis no Bank is absolutely beyond danger. We therefore cordially endorse the proposal to make the issues of paper money entirely a matter of State, control Again if a National Bank were entrusted with the raising and management of all our loans, and with the payment of the dividends, backed by sufficient capital to give an assurance of stability and of its power to meet these engagements no matter in what temporary difficulties the Government might be placed, it cannot be doubted that we should get money more readily and at cheaper rates. Much more so if the Bank of England were the agents and representatives of the National Bank at Home ; an arrangement which might no doubt be effected. There is one part of Mr. Broadfoot's letter which is singularly interesting, because it is, so far as we happen to have seen, original. He strongly advocates the principle of the Bank Charter of 1844, but he admits thatin such periods as those of 1844, 1857, and 1866, the Bank of England has failed to do all it might and ought to have done. His remedy is to increase its capital, which he truly points out is asked now in 1866 to do the same work which it was thought sufficient to do in 1844, when trade transactions and the demand for a circulating medium were not a third of what they are at present. Mr. Broadfoot appends to his pamphlet a scheme for a National Bank, which includes a provision for increasing the capital as required, to meet the increasing business of the country. The whole pamphlet should be read with care and will we have no doubt attract that considerate attention which it well deserves.