The Guardian And Evening Star, with which is incorporated the West Coast Times. THURSDAY, JUNE 5, 1930. THE GOLD RESERVES.

Hokitika Guardian, 5 June 1930, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times. THURSDAY, JUNE 5, 1930. THE GOLD RESERVES.

Tun most generally accepted cause for the world’s financial difficulties is believed in most countries to he the effort to maintain the enormous waste ot material over |Jm war period. Finance is on a very delicate balance, and requires to he maintained in assured credit to merit the confidence of flip people, Naturally this is a subject pn which the economist and the hunker do not always see eye to eye, and while there i,y a divergence of opinion, there is always legitimate reason to he given. The question has been raised publicly in Auckland lately, '-Why are the hunks holding such large reserves of gold in Wellington when London hanks pre finding flip balance of trade difficult to cope wild'?' 1 asked Dr 11. Jjelshaw, professor of economics at Auckland University College recently, “They may have good reason for it, huf my opinion is that they have

little use lor it here. H is sheer waste

01 capital and means expensive loss of interest.” The controllers of the hanks operating in the Dominion do not agree with Professor Belsiiaw as to the necessity for such reserves. Naturally enough, their attitude is one of caution and restrain at a time of fluctuating limtme and high exchange j'ates The private Acts ol the Bank of New Zealand and Lhe National Hank contain a .clause which limits their note issue to the amount of co.n, bullion and public securities which they hold, and further imposes the condition that the proportion of coin must at no time he less than one-third of these securities. Therefore, if the banks wished to release their gold, they could do it hv purchasing public securities up to the. point ol twothirds of their total reserve against note issue. The bank returns for the ..iacell quarter of this year, points out an exchange, show that the total note circulation at the end of that period was .-£(5,417,C00. Against this, coin and

bullion to the extent of £0,648,000 was held in the banks. A co.n reserve of £2,139,000 would have been legally sufficient to cover this issue, which means that at the end of March there was £4,500,000 of “idle gold” in the country. It will thus be seen that the New Zealand note issue is ha ked with gold at the rate of more than pound for pound for pound, and it is safe to say that the Dominion note issue is the only one in tho world which occupies such a strong position. The Bank of New Zealand, naturally, held the major portion of this gold, its notes in circulation, of a total value of £3,584,000, being backed by £3,329,000 in gold. The National Bank of Now Zealand had a note' issue of £1,102,000 and a gold reserve of £872,000, By far the highest proportionate reserve was possessed by the Bank of New South Wales, which held- £1,286,000 against a note issue of £526,000. It may be said that the practice is the outcome of a natural conservatism on the part of the bankers. They are taxed to the extent of 6s 9d per cent, each year on the gold whi.h they hold, and their answer to the criticism is: “Do you think that we would pay our this amount if we u.d not consider the reserves necessary ?” The problem of practical banking is to maintain a sufficient reserve of liquid securities to meet hie prevalent ideas of what is necessary, and they prefer gold to government securities, which is possibly natural enough. A factor in the present banking policy undoubtedly is the fncjt that no bank is willing to sacrifice more gold than it considers it is necessary should be held against possible demands of internal credit. It wishes to hold an ample reserve against any crisis which may demand drastic action, as also against ordinary fluctuations of the note issue. With then present reserves the banks could issue up to £18,009,000 of notes before reaching what is considered to be the safety margin. But whether their policy should be carried to the extreme of the Bank of New South Wales is another matter. This policy of caution is widespread. The Australian banks, which are not banks of issue (that function being discharged by the Commonwealh Bank) held coin and bullion against their ordinary business commitments to the extent of £20,000,000 before this gold was taken from then, by a recent Federal Act. And this raises another question ; Are not tin gold reserves of the New Zealand banks partly held against credit accommodation which might not otherwise bo granted? The currency is not notes alone, An examination of overdraft? might yield some interesting information. It is also a fact that the gobre,serves of his country have been diminishing, In 1928 they stood at £7,785,000; in March of this year they hat • alien to the extent of £1,182,00-9. Some banks have released gold and invested it in securities. And the banks are certainly satisfied that il t.lie’y took steps to reduce their gold reserves they would • he the tnrget for considerable eriti ism. This may provide them with an additional reason for their policy,