CENTRAL BANK.

Hauraki Plains Gazette, Volume XXXXIV, Issue 3086, 13 October 1933, Page 6

CENTRAL BANK.

| FUNDAMENTAL PRINCIPLES. g BANKING EXPERT’S VIEW. | “In view of certain recently-publish- | ed statements regarding the policy of 3 the Government as to the scope and g functions of the proposed Central Re- | serve Bank foi’ New Zealand, the pre- | sent time is opportune,” writes a “Scrutator,” in the “Dominion,” “to $ consider some fundamental principles i affecting central banking and its rela- | tion to the State.” These he sets 8 forth as under:— | In recommending the establishment | of a Central Bank in New Zealand, I Sir Otto Niemeyer, member of the I world’s greatest Central Bank, made I the following statement in his report I to the New Zealand Government:— I “The bank must be entirely free from both the fact and the fear of political interference. If that cannot be secured its existence will do more harm than good.” II In India, where legislation has just been passed for the foundation of a I Reserve Bank for India and Burma, I the greatest care has been taken to ensure that the business of the bank will be conducted on these lines. The Expert Committee which reported on

Indian Reserve Bank legislation, and on whose recommendations the new I Indian Bank Bill has been largely based, recommended that “with a view to ensui’ing confidence in the management of Indian credit and currency... efforts should be made to establish on sure foundations and free from any political influence... a Reserve Bank, which will be entrusted with the management of the currency and exchange.” ‘The Times” of August 16, commenting on the measure, made the following reference to the report of the committee:—“The recommendations are drawn up on lines familiar to central bankers; that is to say, they follow well-known principles, the soundness of which have already been tested in other countries.”

“The Times” goes on to say: “No one with any international experience of central banking will challenge the principle recommended by the commitI tee, that the Reserve Bank should be free from political influence, or that sectional interests should not dominate through control of voting power.” The “Economist” of August 19 states: “The bank is to be not a semiGovernment institution, but a shareholders’ bank... .The Government will, however, have the right of appointment of a minority of the directors of the board, and as regards the vital question of the governor of the bank it will actually make the appointment, though only. from a panel submitted to it by the directors.”

It does not need to be emphasised, says “Scrutator,” how important it is that the above quoted considerations and principles should be carefully thought over and borne in mind throughout the country while the constitution and scope of a Reserve Bank for New Zealand are being dealt with. Nor can it be doubted for a moment that it is in the best interests of the Dominion that the Reserve Bank should be established on lines “ that follow well-known principles, the soundness of "which has been tested in other countries.” Among those principles, as shown above, is the fundamental importance of safeguarding the bank from political influence by observing wise precautions in the method of appointment of the governor and directorate of the bank. The following statement concerning this vital matter appeared in a Press report of October 6 on the discussions of the Parliamentary Caucus, which met to consider the Reserve Bank Bill:—'“Government representatives will constitute a majority of the directorate.” This should be seriously weighed and considered in the light of sound principles which have been tested, and which are being adopted in other countries. It is significant that Sir Ernest Harvey, when visiting Australia in 1927 as a director of the Bank of England, commented strongly and unequivocally as under on this very question: “Even where the interests of a Government in a Central Bank are held to be so great as to require Governmental representation on the board of the bank, such representation should always be limited to a minority of the board.”