STEELING EXCHANGE

Manawatu Standard, Volume LV, Issue 196, 18 July 1935, Page 2

STEELING EXCHANGE

BANKS INDEMNITY ACT. STATEMENT BY MINISTER. Per Press Association. WELLINGTON, July 17. A statement on the Reserve Bank and sterling exchange was made today by the acting-Minister of Finance (Hon. A. Hamilton), in reply to criticism by the Leader of the Opposition (Mr M. J. Savage). The Minister said: “In commenting upon the operations under the Banks Indemnity Exchange Act whereby surplus sterling funds were purchased by the Government from the trading banks, Mr Savage is reported to have said that to make credits available to New Zealand exporters the Associated Banks' made advances in New Zealand- against Treasury hills issued by the Government. This statement, if correctly reported, betrays misapprehension as to what occurred. In other quarters the operations seem lo l>e regarded as a spectacular example of the use of public credit, while to many the transactions still appear to he a mystery, notwithstanding explanations that have been made heretofore.

“To obviate any possibility of loss falling upon the trading banks in continuing to buy export bills at the exchange rate fixed, the State undertook to purchase any sterling funds not required hv the trading banks. To enable these purchases to be made Treasury bills were issued to the trading hanks in New Zealand. Thus the trading banks in effect exchanged their surplus sterling funds in New Zealand for Treasury hills. This was a change in the form of their assets which in no way affected the accounts of their customers, who had received credit for the whole of the proceeds from their exports and wero free to utilise'it as they thought fit. Reserve Rank credits are not simply a creation of public credit, but represent in New Zealand currency the amount of sterling assets now owned by the Reserve Bank. The credits thus represent real assets derived from the sale of New Zealand exports.” The Minister explained that surplus sterling arose only because of uncertainty. Imports were curtailed during 1933 and 1934 more than was warranted on the trading position and if, in subsequent years, additional imports were purchased the accumulation of sterling funds automatically. would disappear.