Manawatu Evening Standard. THURSDAY, Nov. 24, 1932. A CENTRAL BANK.

Manawatu Standard, Volume LII, Issue 306, 24 November 1932, Page 6

Manawatu Evening Standard. THURSDAY, Nov. 24, 1932. A CENTRAL BANK.

Two months ag-o the Prime Minister made the important announcement that . legislation would be introduced this session to provide for the establishment of a Central Reserve Rank in New Zealand. On several occasions since then the matter has been mentioned in a more or less vague way, without the public being given reasons why the Government has deemed it advisable to proceed in this direction. A few days ago opinion seemed to be crystallising that the Bill would be dropped as the session was reaching its concluding stages. The Prime Minister, however, informed the deputation of importing and other interests which met him this week in regard to the exchange rate that, it was definitely intended to proceed with the Central Bank legislation. At the same time, he did not elaborate the reasons actuating the Government. Reference to the Central Bank proposal was made by Mr Coates on his return from Ottawa. It was generally realised there, he pointed out, that a system of central banking was the only complete way to deal with the exchange and other vital questions of Empire finance. A chain of such banks, with a “super” bank in London, was envisaged in the Ottawa discussions on financial issues. So far as this country is concerned, the question was raised more than a year before the Empire Economic Conference was held. In 1930 Sir Otto Niemeyer, the eminent banking authority, after his investigation into Australia’s economic condition, was asked by the Government to give advice upon the banking and currency system in New Zealand. In his report presented to Parliament in July of last year, he recommended that legislation should be passed to establish a Central Reserve Bank, which should be charged with the responsibility for the stability of the Dominion’s currency, and should control the note issue. This would involve the transfer of the note issuing powers held by the trading banks to the central institution. It was also recommended that the trading banks should be required to keep minimum reserves with the Central Bank, which would thus be a bank of issue and a bankers’ bank, haying among its duties the control of the exchanges. While Sir Otto Niemeyer’s recommendations have been strengthened by the viewpoints expressed at Ottawa on financial questions, and the tacit agreement there on the Central Bank proposal, there is a sharp diversity of opinion on the subject in this Dominion. In his annual address to the shareholders of the Bank of New Zealand in June last, the chairman (Mr 0. Nicholson) said his Board was unanimously of the opinion that the present was not a time to make a change in the banking, currency and exchange system of the country, and that such a step prior to the return of normal economic conditions would inevitably be attended with serious dislocation. Mr Nicholson had little faith in the view that a chain of reserve banks throughout the world would be of advantage to New Zealand. It

would surely be idle to suppose the opinion of the other trading banks differs materially from this view. Why, then, should the Government choose this great period of crisis in the Dominion’s history to make such a radical change Y No doubt it has been influenced by the view that a Central Reserve Bank in this country, operating in conjunction with similar banks elsewhere, including the Bank of England, would be able to control the exchange situation. But according to Mr Nicholson, an isolated country like New Zealand, with its small population, does not warrant the creation of a Central Bank. It is high time Mr Eorbes enlightened the public on the matter. A London message of October 2 stated that city financiers were sharply critical of the proposal. They “considered that the absence of an international monetary standard makes it inopportune, and contended that owing to the smallness of the population and the lack of an organised money market, New Zealand has no urgent need for a Central Bank.” This surely endorses the Bank of New Zealand’s viewpoint and only by convincing the people that its legislation is essential can the Government justify its proposal. On that point it has yet to speak with conviction.