CENTRAL BANK PLANS

King Country Chronicle, Volume XXVII, Issue 4459, 19 October 1933, Page 5

CENTRAL BANK PLANS

COMMENT IN “THE TIMES.” Commenting on the statement issued by the Minister of Finance (Mr. J. G. Coates) regarding the proposed Central Reserve Bank in New Zealand, the financial editor of “The Times” says the essential difference between the functions of a central bank and those of a commercial bank is that the former exercises a general control and supervision of credit and currency conditions, while the latter’s business is to collect deposits and to make loans to its customers. Commercial banks work competitively, and must therefore be regarded primarily as trading and profit-making institutions. A central bank acts as banker to the Government and commercial banks, but its chief function is to act as the noteissuing authority, and to Control cx*edit in the nation’s interests and to maintain stability of the currency, which is the foundation of all contractual relations. Because of the delicate problems which arise from time to time it is desirable that the administration of a central bank should be independent of politics, and that its policy should be national and not sectional. It must therefore be guided primarily by the financial and economic welfare of the country as a whole. Its business is not to make profits over and above what is required to remunerate the capital employed in it, and prevent it from being a burden on the taxpayer. The advantage of reseiwe banking fi*om a business point of view is that it centralises the surplus cash resources of the banking system and thus provides a mobile fund to be used in, case of need. New Zealand’s monetary standard for many yeai-s has been the sterling standard, the chief factor in regulating the volume of credit in New Zealand having always been the amount of the London balances. As the Minister of Finance rightly points out the prosperity of the Dominion hinges to a great extent on events in Great Britain, and therefore New Zealand cannot be indifferent to her monetary policy. These facts, of course, cannot be disputed, and one of the chief advantages of a reserve bank is that it would enable New Zealand to act in even closer co-op-eration with this country.