HIGH EXCHANGE BABY

King Country Chronicle, Volume XXIX, Issue 4699, 28 May 1935, Page 5

HIGH EXCHANGE BABY

BANK AS PLUNKET NURSE. RELIEF FOR GOVERNMENT. Among- the reasons given by Professor B. E. Murphy, of Victoria University College, in an address at Napier on Thursday, for the rather sudden introduction of the Reserve Bank of New Zealand was that it could relieve the Government of embarrassment by taking over the problem created by exchange control—“a sort of Plunlcet nurse for the high exchange baby.” Professor Murphy attributed the introduction of the bank to a number of reasons, not all held by the same people, states the “Hawke’s _ Bay Herald.” Among these, he said, it was felt that we should imitate others, be in line with recent developments, and obtain the advantages accruing from central bank operations. The Reserve Bank would _ be an assurance against nationalisation or political control of the bankingsystem and take the wind out of the nationalisers’ sails. Further, it was opportune to secure for the Government and the people the premium on the appreciation of the large gold holdings of the trading banks.. Professor Murphy said it was felt that New Zealand was too dependent on banking institutions domiciled abroad and too likely to be dragged at the heels of Australian finance. The dominance of London was a different matter. As long as we sold mainly to Bi'itain and mainly from Britain we should be dominated by London under any banking system. The attitude of a certain Australian bank frightened many people in New Zealand, for it appeared to be interfering in the Dominion’s domestic politics for its own private advantage. The idea, then, was to have New Zealand money and banking determined for good or ill by New Zealanders in Wellington and not by Australians in Sydney. “Most people felt that if we had to scorch our fingers we should do it ourselves and not let anybody else push our hands into the fire,” Professor Murphy said. Lastly, Professor Murphy pointed to the anomalous patchwork bankingsystem with six trading banks, one domiciled in New Zealand, three in London, and two in Australia, four of them primarily Australian institutions largely outside New Zealand jurisdiction. The Government owned nearly a third of the capital and appointed four out of the six directors of one of the banks, but it had no regulative powers over the other institutions. The banks had ceased to work in harmony with themselves. Exchange had been artificially depreciated, there was no gold standard, and we were tied precariously to sterling, which itself was swinging in the air. Such a situation as this needed regularising.