MR. JONES AND RESERVE BANK.

King Country Chronicle, Volume XXIX, Issue 4771, 12 November 1935, Page 4

MR. JONES AND RESERVE BANK.

(To the Editor). Sir, —Mr. Jones goes On asking where the Reserve Bank got the £28,000,000 "for which it wrote a cheque," when it only had £1,500,000 capital. This has been explained over and over again, but Mr. Jones will still go on asking the question with the idea of misleading his audiences. The transaction was quite simple. When the exchange was raised from 10 per cent, to 25 per cent, the bankers said they must have a guarantee against loss if they paid out on that basis, the reason being that funds would accumulate -in London which they could not use. Thus when a farmer sold £IOO worth of produce the banks paid out £125 (N.Z.) a'nd took over the £IOO sterling in London. The Government, under its guarantee, theiv handed the banks Treasury Bills for £125 (N.Z.) and in return the £IOO sterling in London was handed over by the banks. This sterling balance accumulated to about £22,000,000 and belonged to the Government to balance (say) £28,000,000 Treasury Bills issued against it. When the Reserve Bank started business the Public Account was transferred to it—this account included the £22,000,000 in London. Therefore this sum was laid into the Government account i'n the Reserve Bank, and issued here to retire the Treasury Bills. The Reserve Bank's capital was in no way concerned. If you, sir, paid £IOOO f into the London branch of. the Bank of New Zealand you could draw out;here £1250 (N.Z.) to pay your bills. That is an everyday transaction which is exactly similar to what the Government did. It had £22,000,000 in London, it paid it into the Reserve Bank and drew out the equivalent amount to pay its bills. For Mr. Jones to argue that because the Government could draw a cheque against a sterling balance in London, then his party could go on "creating" credit here without limit is absurd. Should this be tried as Mr. Jones says it will be tried, those who back- him will suffer with the rest of us. It would be disastrous.—We are, etc., N.Z. WELFARE LEAGUE. Wellington, November. 6,1935." .