Manawatu Evening Standard. THURSDAY, JUNE 18, 1936. RESERVE BANK.

Manawatu Standard, Volume LVI, Issue 169, 18 June 1936, Page 6

Manawatu Evening Standard. THURSDAY, JUNE 18, 1936. RESERVE BANK.

The report of the lie serve Bank of New Zealand for the year ended March dt last presented to Parliament during the closing hours of the session is of no practical interest, for since then the .Reserve Bank has lost all the prestige and dignity of a Central Bank, and is now a Htate Bank under rigid political control. It can be said, however, that as a Central Bank it was being managed with considerable sKill in accordance with the principles of central banking. Had it continued as such the report now available would have been of great interest as disclosing the banking position in New Zealand, and would have been useful for comparative purposes in the years to come.

The Governor, Mr Leslie Lefeaux, has done a service tor the man in the street by ■ explaining the why and wherefore of the London funds. These funds total about £24,000,000, and to regard them as lying idle “is obviously incorrect m various respects.’’ These funds are put to work as muck as possible, but they must be invested in such a way as to be absolutely liquid, consequently they cannot be invested m any kind of securities. So far the only source of investment of these funds happens to be British Treasury Bills which yield an interest rate of about lids per cent, per annum. Whatever is obtained from the investment of the London funds is income for the Bank. But these London funds are the bulwarks of our economic structure, and as the report explains, New Zealand being on a sterling exchange basis these London funds are equivalent to a reserve of gold, with this difference that gold must perforce lie idle in the vaults, while tlio London funds can be put to profit earning uses without risk. If money is wanted in New Zealand tile Reserve Bank has merely to transfer from London what is wanted in New Zealand. Assuming that £IOO is wanted in the Dominion, the Reserve Bank has merely to make book entries; that is, the London funds are reduced by £IOO, and the Dominion funds increased by £124. There is a continuous demand on the London funds to pay for our imports from wherever they come. For example, it we purchased £2OOO worth of tea in India the settlement is effected in London. What we buy from other countries is placed against what we sell to those countries, and the balance owing either way is settled in London out of the credits held in London. It is quite unnecessary to hold gold in the Dominion, while the gold standard is inoperative. The Reserve Bank’s London funds will tend to expand when the Government purchases the dairy produce for export, but it

still would not have the complete control of London funds, for the trading banks would still finance wool, frozen meat, hides, skins, tallow, fruit and other of our primary products and would still be able to finance importers. If the Government became the sole exporters of the whole of the primary products of the country the State Bank would have absolute control of' the London funds. But that day is a long way off.