GOLD IN THE BANKS

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

GOLD IN THE BANKS

WHO OWNS IT? AN OFFICIAL STATEMENT. Ownership of the gold coin at present in the vaults of the banks in New Zealand appears to be questioned by a large section of the public. With the idea of obtaining some light on this matter —one of great importance to the banks —the chairman of the Associated Banks (Mr. J. T. Grose) was asked by the Wellington Post if he were disposed to discuss the matter. For the erroneous opinion that the banks do not own the gold a lack of knowledge of the facts is responsible, the chairman explained. “It is not true,” he said, “that when bank notes became legal tender under war regulations, gold coin to' the extent of millions flowed into the banks. Indeed, the flow of gold into the banks consequent upon the note issue becoming legal tender has never been as appreciable as has been imagined. This fact is substantiated by verified statistics, which show that the total of all coin held by the banks for the June quarter, 1914, amounted to £5,287,527; while for the September quarter, 1933, the amount is shown to be £5,061,244, or a decrease of some £226,000. “During the years 1914 to 1932 inclusive the total exports of gold coin from this country amounted to £2,897,544, but it should be noted that these exports are covered practically to the full extent by imports of gold coin, the total during the same period being £2,766,969. The importing of gold coin by individuals during that time would be negligible. Gold Held by Publici

“It is thus clear that the gold coin now held by the banks and the gold coin exported by them could represent, to only a minor extent, gold coin received from the public of New Zealand since bank notes became legal tender.”

In answer to inquiries as to what has happened to such gold coin as was in the hands of the public at the outbreak of war, the chairman said that “an exaggerated opinion of the quantity of such gold coin seems to be prevalent. It has never been the practice of the public to carry gold on their persons to anything like the extent they carry bank notes, and it is probable that prior to 1914 the amount of gold coin in circulation in New' Zealand did not exceed half a million pounds of thereabouts. Of this a great deal has left the country privately in the hands of travellers overseas, who until a few years ago were permitted to, and did, carry varying quantities of gold coin. Some of such gold coin was obtained from the banks, but a very great proportion of it possibly was obtained from firms or individuals who had retained it when gold ceased to circulate. The aggregate of gold coins which left the country in this way (without, of course, appearing in export statistics) was probably much greater than the amount which was received by the banks from the public since 1914. Another Error. “Another erroneous impression is that the gold is, or was, entirely used as a backing for the note issues of the banks, but the fact is that the statutory requirement was that the individual banks’ gold reserves should be not less than one-third of their note issues; and it was, of course, the practice of the banks to keep available as a specific reserve for their notes such an amount of gold as in their judgment was warranted to be likely to be the full measure of their note circulation at any time. “In addition to this note issue backing, however, it was the prudent practice of the banks to purchase overseas considerable quantities of gold coin, which were imported into New Zealand and held here by the banks, not as a statutory reserve against their note issues, but as a reserve against their general liabilities, including deposits, etc.. Gold Bought by the Banks.

“This gold was purchased with the banks’ own assets, and was, and is, as undeniably their own property as are their premises. To take this gold at anything less than its real value would be straight-out confiscation. Had the assets which the banks devoted to the purchase and importation of such gold been invested in sterling balances in, say, the Bank of England for the same purpose, that is, a general reserve in respect of their business, there would have been no thought of depriving them of the value of such property. It is greatly in the interest of sound banking, as well as of the country in which the bank trades, that a prudent policy of setting aside reserves should be followed. That the banks in New Zeala'nd held part of such reserves in the most liquid form possible (that is, gold coin in excess of note reserve requirements) is evidence of their careful principles of trading; under not pretext could this be taken as any justification for confiscation of the reserves the banks voluntarily built up from their own resources, and which, beyond question, are part of their assets, and their own property.”