BILLS OF EXCHANGE

Manawatu Standard, Volume LVI, Issue 165, 13 June 1936, Page 10

BILLS OF EXCHANGE

RESERVE BANK DIRECTOR’S VIEWS.

USE OF TREASURY BILLS

An exhaustive survey of the use of bills of exchange is made in the annual report of the board of directors of the Reserve Rank of New Zealand. The board says that the question requires to bo ■ viewed from various angles, and observers that the history of bills of exchange has not been completely unchequered in some countries. Although a bill market was a useful adjunct to the financial structure of any country, it was not desirable to attempt to force the use of hills upon the trading community unless that means of financing transactions could be proved to offer advantages over alternative methods. “A bill market implies, of course, the existence not only of bills, but also of a group of persons or corporations prepared to deal freely in them, states the report. “While such a market in New Zealand may be regarded ns a highly desirable objective, its complete establishment does not appear to be capable of immediate realisation. Nevertheless, the board is of the opinion that all practicable steps should be taken to promote such a development, and that the proper use of bills should be encouraged as much as possible. “In reducing the rate of discount to a level considerably below that quoted by the trading banks for overdrafts, one object of the board was to create conditions in which producers manufacturers and merchants would liaie the opportunity of testing whether the balance of advantage for them lies in the use of bills discountable at a relatively low rate, or in the more flexible overdraft at a higher rate. In' lcc ent years the use of Treasury Bills ha, been extended very considerably in many countries, and it is not unusual for such instruments to form the majoi port of the contents of the portfolio, of dealers in bills in those countries. Treasury Bills provido a useful and economical means of financing expenditure of a temporary nature ; and the board is of the opinion that recomse to this means of borrowing, if kept within reasonable bounds, would not onlv be convenient and economical lor the State, but would in addition assist in the development of a hill maiket, thereby facilitating the control of credit in'the Dominion. “It is, however, considered that the issue of Treasuiy Bills should ordinarily be restricted to such extent as is necessary to cover expenditure incurred during certain periods of the year in anticipation of revenue or other receipts to he received later, and to such further strictly limited amount only as can be kept outstanding without risk to the financial structure Recourse to the issue of additional Treasury Bills mav become a practical necessity in certain circumstances and it is therefore regarded as most desirable that latitude should ordinarily lie allowed for an increased issue to meet an emergency