CURRENCY INFLATION.

Lyttelton Times, Volume CXVIII, Issue 18574, 29 November 1920, Page 6

CURRENCY INFLATION.

An interesting illustration of the exercise in timo of peace of powers vested in the Government during and by reason of the war is to be found in the recent regulation empowering tho banks to issue notes against advances made to enable the borrowers to subscribe to the Discharged Soldiers' Settlement Loan. It will be still more interesting to see whether the banks will avail themselves of the power, since their present poliay seems to be in the direction of deflating the currency by restraining credits. There can be little doubt that this policy on the part of the banks has been a factor in hampering subscriptions to the present loan, since bankers generally have shown a disposition to balanoe the new credits required to ilnance subscribers by withdrawals of credit. To accept the inducement now offered by way of a right of additional note issue would mean at least a pause in the process of deflation, if deflation is really what has been aimed at by the banks in recent months. From the banks' point of view, we suppose, the vital question is at what date the Parliament of New Zealand is likely to demonetise the bank-note and restore the sterling currency. It is difficult to believe that Mr Massey's latest move does not mean a postponement of that date, however near, or far it may have been in the absence of additional avenues of note issue. Criticism of the new move will be dictated according as to whether the critic does or does not believe that currency deflation is a first necessity under present economic conditions. The Secretariat of the League of Nations, prior to the Financial Conference at Brussels, invited five leading experts in economics and finance to indicate the Ineasures essential to the readjustment of tho financial situation. These professors, Bruins (Holland), Cassel (Sweden), Gide (France), Pantaleoni (Italy) and Pigou (England), prepared a joint report, the first clause of which was:—" It ia essential that the inflation of credit and currency should be stopped everywhere at the earliest possible moment." The Committee on Currency and Exchange set up by the Brussels Conference reported recommending that "the growth of inflation should bo stopped by abstaining from increasing the currency and by increasing tho real wealth on whioh such currency is based." It would be easy to base on these weighty opinions a condemnation of the increase in currency to which the door has just been opened in this country, but it would not be fair to do so without admitting that while the Conference adopted the recoinmenditions of its Currency and Exchange Committee, it also adapted reports of other committees aiming at the creation of credits in order to enable oertain European countries to recover themselves. It must also be admitted that the problem which presented itself to the delegates at Brussels—the rehabilitation of war-ravaged Europe—was hardly on all fours with that which we have to consider in this country. New Zealand's increase in paper currency, while it has been large, is not comparable with the increase which has taken place in most countries in the Old World, and it is still not in excess of the banks' coin and bullion holdings. Granting all this, and recognising also that New Zealand's return to a more stable currency basis must be more largely influenced by the world outside than by domesrio measures, an increase in paper currency at this stage is still open to grave objections. Even if the ri&vr of Sir George Paish be taken, that the inflation of the world's currency was only a very small factor in the rise in prices experienced during the war, and that the task of tho moment is not to decrease national purchasing power but to increase international purchasing power, it i 3 still a question whether a substantial increase in New Zealand's note issue is a desirable thing to aim at in the present condition of affairs. Sooner or later this country will be compelled to face the problem of getting it& note issue back into some port of relationship with gold, . and the economists, whether they deem getting back the first duty or not, are unanimous iihat it is desirable to get back as soon as possible. New Zealand fa postponing its return to a more stable basis of currency and oredit, and such proscrastination will eventually have to be paid for.

In our "Commerce and Finance" columns this morning will be found the text of an announcement in the current "Gazette" increasing the amount of deposit on which the Poet Office Savings Bank will pay 4 per cent from £3OO to £SOO, and tho amount of deposit on which 8$ per o® nt ™W be paid from £IOOO to £SOOO. This is a move in quite the right direction, and it is pleasant to be able to congratulate the Minister of Fihance on hating taken so sensible a step. The new regulation Should do much to increase the savings bank's popularity. The great and increasing use which is being made of this institution is evidenced by the figures for the last three years which may be summarised as follows:

Balance Year ended deposits over Sent 30. Deposits. vduidraTvals.

Since it seems to be recognised by Mr Massey that it is desirable to encourage the use of tho Post Office Savings Bank, and to attract business to it, it may be helpful to draw attention to one direction in which the bank undoubtedly loses business, and that is in the rather complicated and lengthy procedure necessary on the part of depositors when they desire to make a withdrawal. This is particularly marked in the case of small trustee accounts, and we know of mora than one instance in which such accounts have been removed from the Post Office and lodged with an ordinary bank because of the saving in timo and trouble in the matter of withdrawals. We are not suggesting that tho Post Office Savings Bank should adopt" the cheque system, but it should be possible to safeguard the interests of depositors and of the institution by methods less cumbrous and complicated than those at present in use.

The Wellington " Post " in a recent issue draws attention to a direction in which the ad valorem system of levying customs duties operates to the special disadvantage of the publio. This is in connection with certain drugs, in general use, which are assessed on a very high price basis, resulting in a substantial tax on the consumer, <slnce there are no commodities on which such imposts can be so readily passed on as those in medioinal nse. The drugs loferrcd to inolude cocaine and anti-pirin, and others which can be classed neither as luxuries nor as patent medicines, and into which the question of protecting a local industry cannot enter. The case for consideration of these duties seems a particularly strong one. Indeed, as we have frequently said, a very strong case can be made out for the entire abandonment of the ad valorem principle of valuation, for it operates to enhance the effect of high prices and makes Customs taxation a far larger factor than it should be in tho high cost of living.

1918 1919 1M0 . 17,777,989 . M,014,€77 . 87,070,024 3,053,279 2,448,279 4,670,255