Manawatu Evening Standard. WEDNESDAY, MAY 14, 1930. COMMONWEALTH BANKING

Manawatu Standard, Volume L, Issue 141, 14 May 1930, Page 6

Manawatu Evening Standard. WEDNESDAY, MAY 14, 1930. COMMONWEALTH BANKING

A Canbehua message, published last week, suggested that the Bill for establisiung a Central Reserve Bank in the Commonwealth was likely to be shelved when it reached the Senate by being referred to a commission for inquiry not merely into its necessity, but also as to its probable effect on the banking system in Australia. Were the position of the banks other than it is, or the bankingconditions in Australia akin to those of other countries where it has been found desirable to establish reserve banks as a means of stabilising the financial standing of the banks trading with the moneys of the public, the proposed Commonwealth Central Reserve Bank might be considered both necessary and desirable. But it is far otherwise, and, so far as the Australian banks are concerned, they have more to fear from the interference of the Labour Socialist Government with their working and freedom of action than from unsound trading on their own part. In the- present financial crisis which has overtaken the Commonwealth, tattoo little attention has been paid to its chief cause than to devising what has been termed by this and other journals “heroic measures” on the part of the Commonwealth and State Governments for meeting a crisis which has been largely brought about by the lavisn and extravagant loan expenditures of former Governments, without the necessary backing to meet the further liabilities incurred on behalf of additional interest payments. It seems to have been overlooked oy the Governments concerned that loans floated abroad do not, except under very rare conditions, and then only partially, enter the country in the shape of hard cash, but in the form of goods and merchandise. That, when a loan, say of £10,000,000, is floated ia London, the £10,000,000 is not transmitted to the country floating the loan, in gold or bullion, but that it remains to the credit of the country concerned, and helps in financing its business in that and other countries, London remaining as the settling centre, generally speaking, for the country’s purchases and its liabilities not merely in the Mother Country, but for those incurred in other countries. Borrowing recklessly and imprudently had the effect of establishing large credits outside the Commonwealth and ]pd up largely to those equally excessive and, in some respects at least, very unnecessary importations, the cost of which is so seri-

ously impairing the Commonwealth’s hnancial position to-day. The banks are only responsible in a very minor degree for the present iiappenings. The Commonwealth Bank of Australia (a Government owned institution) at present controls the Australian note issue, and, by virtue of an Act passed by the Scullin Government, has requisitioned the whole of the gold and bullion held by the joint stock or company owned banks, and, as the Government has made Australian notes payable only within the Commonwealth, it has so restricted the operations of banks that it is almost impossible for them to issue letters of credit to their customers abroad. As if this was not enough, the Scullin Government, with its Central Reserve Bank Bill, proposes to practically commandeer 10 per cent, of all call moneys deposited with other banks, and 5 per cent, of all their other deposits, such moneys to be held bv the Central Bank, ostensibly to assist other banks in tiding over periods of difficulty. That would entail a levy of considerably over £20,000,000, which the non-Govemment banks would have to hand over to the Reserve Bank, while the Commonw r ealth Bank which, from its reserve funds, is to find £2,000,000 for the capital of the Central Reserve Bank, would be levied upon for something like another £1,250,000 on its interest bearing deposits and moneys at call. It would also have to hand over the note issue to the Central Reserve Bank, which would thus practically control the whole of the country’s credit, or to at least determine the extent to which the outside banks could finance their customers.