RESERVE BANK

Manawatu Standard, Volume LIII, Issue 243, 11 September 1933, Page 7

RESERVE BANK

DOMINION’S PROPOSAL. FAVOURED IN LONDON. • MEANS TO CO-OPERATION. (United Press Association.—By Electric , Telegraph.—Copyright.) (Special to Press Association.) LONDON, Sept. 9. The chief London newspapers gave prominence this morning to the statement by the New Zealand Minister of Finance* Hon. J. G. Coates, regarding the proposed Reserve Bank for the Dominion. The statement comprises a precis of the explanatory article in the New Zealand Press regarding the Reserve Bank.

Commenting editorially, the City Editor of the Times says: “Tho Minister of Finance puts forward cogent arguments tor the establishment of a Reserve Bank in New Zealand. The essential difference between, the functions of a Central Bank and those of a commercial bank is that the former exercises general control, and a supervision of credit and currency conditions, while the latter’s business is to collect deposits and make loans to its customers.

“Commercial banks work competitively, and must therefore be regarded primarily as trading and profit-making institutions. A central bank acts as a banker to the Government and the commercial banks, but its chief function is to act as the note-issuing authority, to control credit in the nation’s interest, and to maintain the stability of the currency, which is the foundation of all contractual relations. “Because of the delicate problems arising from time to time, it is desirable that the administration of a Central Bank be Independent of politics, and that its policy and practices be national, not sectional. It must, therefore, be guided primarily by the financial and economic welfare of the country as a whole. Its business is not to make profits over and above what is required to remunerate the capital employed in it and to prevent it from being a burden on the taxpayer. “The advantage of reserve banking from a business point of view is that it centralises the surplus cash resources of the banking system, and thus provides a mobile fund to be used in case of need.”

The editorial concludes by stating that New Zealand’s monetary standard for many years lias been the sterling standard, the chief factor regulating the volume of credit in New Zealand having always been the amount of London balances. As the Minister of Finance rightly points out, the prosperity of the Dominion hinges to a great extent on events in Great Britain ; therefore New Zealand cannot be indifferent to her monetary policy. These facts cannot be disputed, and one of the chief advantages of the Reserve Bank is that it would enable New Zealand to act in even closer co-operation with Britain. The Daily Mail says editorially: “That the importance of proper Central Bank facilities for carrying out a considered monetary policy is fully recognised in New Zealand is apparent from the decision of the Government to proceed with a Bill for the formation of a duly-constituted Reserve Bank. To be effective,’ monetary control must be centralised, and with its own Central Bank the Dominion will be in a better position to co-operate in any international monetary action to raise prices, while she will also he able to assist in the flattening out of unnecessary trade fluctuations.” The article concludes by stating that New Zealand’s latest step will be watched with sympathetic interest in the city.