CENTRAL BANKS

Hokitika Guardian, 16 December 1935, Page 7

CENTRAL BANKS

BRITISH EMPIRE CHAIN. REASONS FOR FOUNDATION.

The Stability of the British Empire has been an accepted fact for so many years that it is difficult to remember that it is of comparatively modern growth and that the economic and financial relations of its constituent parts are only now being worked out, says the Economist. For example, the past year has witnessed the opening of central banks in New Zealand, Canada and India, while it is only very recently that the Commonwealth Bank of Australia has completed Its > transition from a commercial to a central bank. If these Dominions have existed so far without central banks, why has it become necessary to make the change? It may be conceded that so far either the Dominions have escaped an acute monetary crisis or that, if difficulty has arisen, it has been due to general economic or political causes unconnected with the adsence of a central bank. The Dominions, too, had evolved a successful currency and credit system for themselves, operated partly by their Governments and . partly by their commercial banks. Nevertheless, the completion of the chain of Empire reserve banks marks a definite move forward. The machinery for the supply and distribution of credit was indefinite and incomplete. To some extent it was bound up with the general machinery of Government finance, and quite apart from any question or private or public ownership, the function of the central bank should be separate from those commonly performed by the Treasury. Next, there is the absence of a money market in most of the Dominions. This was frequently brought forward as an argument against the establishment of a central bank, for it was urged that without a money market a central bank would be deprived of its normal instruments of control. Alterations in its rediscount rate would be an empty gesture, while it could not “intervene in the onen market ”if no such market existed. This argument cuts both ways, for the foundation of the central bank should help to create a .money market, which in many ways would be very beneficial. There is undoubted scope for the right kind of money market in the Dominions. To a large extent they are primary producers, which means that there is a strong seasonal obh and flow of credit. Hero is an obvious function which a well-organised hanking svfitem and discount market could perform.