THE Hauraki Plains Gazette With which is incorporated THE OHINEMURI GAZETTE. Motto : Public Service. MONDAY, WEDNESDAY, FRIDAY MONDAY, MAY 25, 1931. CENTRAL BANK PROPOSAL.

Hauraki Plains Gazette, Volume XXXXII, Issue 2728, 25 May 1931, Page 2

THE Hauraki Plains Gazette With which is incorporated THE OHINEMURI GAZETTE. Motto : Public Service. MONDAY, WEDNESDAY, FRIDAY MONDAY, MAY 25, 1931. CENTRAL BANK PROPOSAL.

WHEN the International Financial Conference met in Brussels in 1920 one of the resolutions passed was that “in countries where there is no central bank of issue one should be ’ established.” In the last ten years the advice of the Brussels conference r has been widly followed, new central banks have been formed,, and many j existing banks have been drastically overhauled. The reorganisation of j the Reichsbank was an integral part of the Dawes scheme; the countries that previously formed part of the Austrian and Russian schemes, as ’ well as certain of the Balkan States, have established new central banks. Similar steps have been taken in some of the South American States, and in South Africa, while the creation of a reserve bank in India has also been proposed. In other countries, such as Belgium and Norway, though the previous structure remains, important changes have been introduced. In Australia the Commonwealth Bank . combines in certain respects the role i of a central bank and a commercial 1 bank, and this arrangement is not conil sidered altogether satisfactory. Thus 'I the recommendation by Sir Otto Nie- | meyer, of the Bank of England, who i| recently investigated® the banking, I currency, and exchange problems of I New Zealand, and whose report has I arrived from England, that the DomI inion should establish a central bank | will come as no surprise to those I who have followed the trend of bankI ing and currency in other countries during the post-war period. His proI posal to recast the whole fabric of New Zealand banking simply means I that he considers that this country should step into line with a worldwide movement. The lack of a central bank is exceptional in highly develI oped commercial and industrial countries. I The banking system in New ZeaI land at present, like that of Canada and that of the United States before 1907, is decentralised, and as has been pointed out by Kisch and Elkin in their book, “Central Banks,” there are serious drawbacks to this system, as it involves a divided responsibility and a lack of leadership. Whether there is a gold standard or whether there is not, the control of the credit and monetary system involves the I solution of many problems of policy I and detailed administration. But if there are 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 welldevised and coherent plan of action is essential. In view of the fact that England has led the world in banking technique, and that Sir Otto Nie- ' meyer, who is now recommending a change of system for New Zealand, is i connected with the Bank of England, it is interesting to note the thirteen propositions laid clown by Sir Ernest i Harvey, Comptroller of the Bank of I England, concerning the functions | and duties of central banks. These are:— • 1. A central bank should possess the exclusive right of note issue. 2. A central bank in its management and policy should be free from Government control and the influence of politics. 3. A central bank should be entrusted with the entire banking business of its own country. 4. A central bank should be the banker of the trading banks and should act as a ■ selling agent for clearing difl’erences between such banks. 5. A central bank should not ordinarily compete with the trading banks for general banking business. 6. A central bank should ensure to the public the provision of adequate banking facilities ' on reasonable terms. 7. A central bank should not take moneys at interest on its own account. 8. A central bank should quote publicly the rate at which it is prepared to discount approved bills, and should publish at regular and frequent intervals a clear statement of its position. 9. The assets of’ the central bank should be of the most liquid character possible. 10. A central bank should not draw or accept bills payable otherwise than on demand. 11. A central bank should not engage in a general exchange business on its own account for the purpose of earning profits. 12. A central bank should not engage in trade, or have any interest in any commercial, industrial, or other undertaking. 13. A central bank should have no branch outside its own country, but may have agencies abroad. So far, Sir Otto Niemeyer’s report ■ has not been considered by the Gov- : ernment, but it would appear that one ; of the first functions of the bank will , be to stabilise the exchange rate be- ’ tween England and New Zealand. As i pointed out by Professor Murphy in his “Outlines of Economics,” four of the six banks operating in New Zea- I land are branches of Australian ‘ banks, and “the fact that so much of * our banking business is done in Aus- ! tralian banks make the Dominion 1 somewhat sensitive to financial difficulties arising in Australia.” This difficulty could be got over by the establishment of a gold exchange £ standard, and it may be taken for granted that this will be the next step * after the establishment of the bank.