POINTED ADVICE

King Country Chronicle, Volume XXXIII, Issue 4815, 26 July 1939, Page 7

POINTED ADVICE

THE RESERVE BANK. GOVERNMENT BORROWING. DANGER OF RISING PRICES. LOWER STATE EXPENDITURE. Special profits totalling £250,285 and pointed advice to the Government to avoid further recourse to the Reserve Bank for further accommodation, are features of the annual report of the bank tabled in the House on Friday. Generally reviewing the economic position, the report states: "The developments outlined earlier reveal that not only did general business activity and demand for imports continue at a high level, in spite of a reduction in the. total value of exports and considerable net outflow of capital, but notwithstanding the expansion of credit represented by an increase of more than £14,000,000 in Reserve Bank accommodation to the State, including an increase of £2,300,000 in advances to the Primary Products Marketing Department, commodity prices remained relatively stablethroughout the year. "Now that the surplus of sterling reserves has been practically exhausted, however, and the Reserve Bank has been relieved of the obligation to pay its notes in sterling, a different situation presents itself. No longer will it be possible for credit created by a bank to find an outlet to any appreciable extent in the purchase of goods from overseas, except by using the bank's statutory reserves for the purpose'. While the demand for comodities we being partially satisfied by the utilisation of the Dominion's available sterling reserves, the effect of the expansion of credit on internal prices was not very great, but in the existing circumstances any additional credit expansion must inevitably tend to cause sooner or later a general rise in prices with consequent diminution ir the value of all savings, wages, salaries and pensions. "The Board would, therefore," the report continues, "stress the desirability of the avoidance of further recourse to the Reserve Bank for accommodation, and of limiting Government expenditure to such a sum as can be raised by taxation, in addition to what can be borrowed from the public, either in the Dominion or overseas. If such a policy were adopted still further, if steps were taken to reduce outstanding advances from the bank, there would be a better prospect of the bank being able to assist by granting accommodation during relatively unsatisfactory export periods without jeopardising the financial economy of the Dominion."