CENTRAL BANK

Manawatu Standard, Volume LIII, Issue 251, 20 September 1933, Page 5

CENTRAL BANK

LOSSES AND GAINS. SIR HENRY BUCKLETON’S VIEWS V lien interviewed in reference to the statement made by the Minister of Finance on the subject of a Reserve Bank for New Zealand Bill, Sir Henry Buckleton, general manager of the Bank of New Zealand, expressing his personal opinion, said:—“l cannot- agree that Mr Coates’s statement will enable the public of New Zealand to fully understand the effect of the Bill. For instance, Mr Coates does not say how the revenue of the country will be affected if the Bill should be passed. The country is already overburdened with taxation, and, therefore, so that taxpayers may know what further burden may be cast on them, a detailed statement of the losses and gains to the revenue likely to result from the passing of the Bill should be made public. “Then, again, Sir Coates has not alluded to the heavy commitments made by the banks to finance the Government. In justice to the ba.nks he should do so. “The Minister complains of the rate of discount charged on Treasury bills, but he does not say that by a special and unusual arrangement for rebating the bills the Government obtains a. substantial reduction of the rate, nor does he say that the banks are willing to reduce the rate provided the banks are put on the same footing for income tax as other joint stock companies. “In the British Empire,” he continued, “there is only one Reserve Bank on the lines of that proposed for New Zealand, viz., the Reserve Bank of South Africa. Owing to Britain going off the gold standard in September, 1931, the South African institution lost in a short period nearly £l/500,000, though it is true tha.t much of that loss has since been made good (at the expense of South Africa), by working on a very wide margin between the buying and selling rates of telegraphic transfers on London —the margin for some time running at from 5 to 7 per cent. At present it is 1 per cent., while in New Zealand the margin has for some years been maintained at I per cent. “A reserve bank system was instituted in the United States in 1914, twelve such banks being established. Those banks have failed to regulate credit, to- control interest or exchange rates, to check the wildest speculation, or to prevent the United States going off the gold standard. Further, last year, the whole of the banks in the United States suspended payment for ten days, and some thousands of them have gone into liquidation. “There is no Reserve Bank in Canada, and the banks there are unanimously opposed to the establishment of one. It is perhaps not too much to say that the financial institutions of few, if any, countries have weathered monetary troubles since 1919 with less disturbance than Canada and New. Zealand. “In Australia, the Commonwealth Bank, a purely State institution, acts in some respects as a Reserve Bank, but it cannot be said that monetary conditions there have been as stable as in New Zealand. It allowed the State Savings Bank of New South "Wales, an institution with over 55 million of deposits spread over nearly 1,000,000 depositors, to suspend payment. Many of the depositors sustained much loss through having to sell their deposits, and many more suffered great inconvenience, until some months after the suspension the Commonwealth Bank took over the Savings Bank. THE STATE’S INTERESTS. “It is also important to bear in mind the proprietary interest of the State in the Bank of New Zealand. Of the bank’s paid-up capital of £6,328,125, the State owns one-third, viz., £2,109,375. Since it dbecame a shareholder, the State has received dividends from the bank aggregating £3,515,878, equal to 102 per cent, per annum. Based on the latest dividend, and valuing gift-edged security on a 4 per cent, basis, the market value of the State’s interest in the bank ma.y be set down at £4,687,475—a goodwill of no less than £2,578,100. It is obvious from these figures that anything which might detrimentally affect the Bank of New Zealand is an important factor which should be taken into consideration when enacting legislation affecting the existing banking system. “Further, the Government appoints four of the six directors of the bank, thus ensuring that the policy of the bank is on what its board believes to be the best interests of the country. “The Bill provides that the Reserve Bank shall be exempt from taxation. So that Parliament and taxpayers ma.v clearly understand the adverse effect this questionable concession will have on the revenue of the country, a state.ment should be submitted setting forth in deail the losses and gains expected as the result of the establishment of the Reserve Bank.” NO NEED FOR RESERVE BANK. Sir 'Henry Buckleton, in reference to reserve banks in general, said, however desirable such banks may be in countries carrying very large populations and in close contact with similar countries, the position becomes quite different when dealing with isolated countries of a small population, which is the case of this Dominion. FEAR OF DISLOCATION. “Monetary conditions the world over are so unsettled and the outlook so obscure,” Sir Henry continued, “that to interfere with a banking system that has served, and is still serving, the country so well would be most unwise. Time enough to consider a change if it be necessary —which I do not admit —when the present depression has passed away and conditions have again become normal, otherwise there would inevitably be a. serious dislocation. “Sir Otto Niemeyer has stated that the establishment of a Reserve Bank in New Zealand would provide an instrument for co-operation with the central banks of other countries, and at present there is no suitable point of contact with New Zealand. DICTATION RESENTED. “What need is there for New Zealand to be in contact with the central banks of other countries save England? “The London authorities found no difficulty in establishing contact with the New Zealand banks when in November, 1931, our Government was informed that as a condition of renewing four ipillions of Treasury bills then about to mature, ‘you must compel’— not ask, mind you, but compel—‘the banks in New Zealand to find in London one million per month during the following twelve months to meet the Government’s requirements there.’ This the banks agreed to do, because the credit of the country was at stake. “If the dictatorial attitude of the London authorities in 1931 is an example of what New Zealand may expect from contact with the' central banks of Other countries, the less the Dominion has to do with the latter.the better. “OF MAJOR IMPORTANCE.” “The baiH» have made extremely heavy commitments to finance the Government’s requirements, and the question of Government finance and the ability of the Reserve Bank to finance the Government to as great, or a greater, extent than the associated

banks, are matters of major importance. “Little imnortance should be attached to the discount facilities of the Reserve Bank, as such facilities are not likely to be availed of by the other banks; indeed might not be available when most required bv reason of the Reserve Bank being already overburdened with Government paper.” Finally, Sir Henry said lie would quote the following excerpt from the Statist, London, of May 6 last, in reference to French Government finance, as significant:—“There were also objections to additional short-term issues in Fiance, as the banks are more than usually loaded with Treasury bonds, and as the Bank of France, which in recent months has been showing an unusual and significant measure of independence of the Government, has given increased evidence of its diffidence in rediscounting such shortterm Government paper.”—Post.