Manawatu Evening Standard. MONDAY, OCTOBER 9, 1939. RESERVE BANE BILL.

Manawatu Standard, Volume LIX, Issue 265, 9 October 1939, Page 6

Manawatu Evening Standard. MONDAY, OCTOBER 9, 1939. RESERVE BANE BILL.

When the Reserve Bank constitution was altered by the Government it was generally understood that it had assumed complete power over the Bank. The effect of the amendment was “to give effect as far as may be to the monetary policy of the Government,” wliich also holds power of appointment to the Bank’s board. In carefully explaining the effect of the legislation passed in 1936 the Minister for Einance said that the “next step was to ensure that the control of the Bank came under the control of the Government in a real sense—not the shadow of control, but real control.” The Minister then said also that the directors were there at the Government’s pleasure, and in a reference to the clause defining the Government’s powers emphasised that the “provision, gives the Government absolute control.” The manner in which the Board has given effect to the Government’s policy is shown each week in the Bank’s statement- of liabilities and assets. Advances to the State under the heading of “other purposes” now stand at the record high level of £.16,800,000 and the Primary Products Marketing Deparlment owes the Bank £4,865,263. an an increase of nearly a million pounds in the year. This, however, is but a triflling . addition when compared -with the former item which, in October, 1938, stood at £4,575,000. In the same period the proportion of reserve to the demand liabilities has fallen from 57.259 per cent, to 25.473 per cent. In recent annual reports the Directors have not hesitated to draw marked attention to these matters, and in regard to public works have stressed the danger of overexpenditure, keeping men in the Government’s employ instead of getting them into gainful employment. The Government’s latest amendment to the Reserve Bank Act now establishes a financial dictatorship, and in the light of the Minister’s statements in 1936 it may be presumed. that the absolute control then'spokeu of did not -exist. The principal clause states: “In the exercise of their powers and functions under the principal Act the Governor and the Board of Directors shall have regard to any representations that may be made by the Minis-

ter of Einance in respect of any functions or business of the Reserve Bank, and shall give effect to any decision of the Government in relation thereto, conveyed to the Governor in writing by the Minister of Einance.” The effect of the clause is obvious. It means the absolute control of the Bank’s functions which no doubt the Government felt it had obtained in 1936 under the amendment then passed. The dictatorship is complete and any independence the Bank may have had in the past three years has been irrevocably wrested from it. Yet it is well to recall that, •when recommending the establishment of a Reserve Bank in New Zealand, Sir Otto Niemeyer stressed the very important function of independence. “In the first place,” he wrote, “the Bank must be entirely free from both the actual fact and the fear of political interference. If that cannot be secured, its existence will do more harm than good.” Erom now onwards the Government may in its discretion vary or suspend the minimum reserve of 25 per cent, of golcf or sterlingheld against notes and other demand liabilities. In the 1936 amendment this could be suspended for a month at a time; the suspension now may be absolute. The importance of this reserve was that it prevented inflation and the printing of notes at will. Now the way is open for the printing press to go to work, and New Zealand’s credit may very quickly be affected. The situation is one that calls for the very earnest thought of all people, for their very welfare depends upon a stable financial structure.