THE STATE AND THE BANK OF ENGLAND

Manawatu Times, Volume 60, Issue 250, 23 October 1935, Page 16

THE STATE AND THE BANK OF ENGLAND

AN ENGLISH WRITER MAKES SOME RECOMMENDATIONS WHICH IMPLY RECOGNITION OF CHANGES WHICH STARTED MANY YEARS AGO AND ARE STILL GOING ON

“WE are off gold/’ states a writer in the “Economist,” dealing with the present position of the Bank of England, “and instead the bank has to operate the Exchange Equalisation Account, which is a new addition to the machine, demanding a new technique which is having to be learned by experience.

carrying into effect Bagehot's suggestion that the deputy-Governor should correspond to the permanent head of a Government department.

pointment, as in tho case of any other important public servant. Thus, in future, the election of the Governor —and possibly the deputy-Governor —should be made subject to the approval of Cabinet. “It is equally important to give the Governor security of tenure and full protection from political pressure, for at times it is almost certain that the carrying out of his duties may compel him to take unpopular action, and he may often find himself in the position of having to give the Government unpalatable advice.

Not Exclusively “City”

“The directors of the bank no longer represent exclusively ‘City’ interests, and two of the directors-are now full-time and full-paid employees of the bank. The Governor has also recruited a personal staff of technical advisers, and of these two have come to the bank from the Treasury. Finally, it is inconceivable that the Governor could contiuo to hold office in opposition to the wishes

“Moreover, a whole set of new politicaleconomic questions have arisen to affect the daily routine work of the Government and the bank,” adds the writen in the “Economist.” “In addition to the work needed to keep the pound in its appropriate relation with the dollar, the gold bloc 'currencies, and those of the sterling area, new problems in the technique of making international payments have been created by tariffs, commercial treaties, international trade and exchange restrictions, exchange clearings and foreign trade generally. “At home there are new questions of maintaining or raising the wholesale pricelevel; of balancing wages, costs and retail prices; of chronic unemployment, the special areas and public works, including housing, and finally such matters as debt conversion, Budget policy and many new aspects of public finance. In many of these matters the bank is involved, both as the operator of our financial machine and also in its relations with other central banks, including the new Dominion central banks, and with the Bank for International Settlements.

“Hence, once he has been elected, he should hold office for a statutory period of some length, such as seven or ten years. During his term of office he should be as secure and immune from criticism as a judge and should only be removed from office on the deliberate decision of both the Bank Court and the Government or by a motion in both Houses of Parliament. This would protect him from any passing and unjustifiable .wave of unpopularity.” With regard io the suggestion that a special Advisory Committee to the Governor should be appointed, consisting of representatives of industry, commerce, labour, commercial banking and economic science, the “Economist” adds:—

“This suggestion, which is parallod in tho structure of economic organisations in many countries of the world, is an alternative to the proposal that the Court of the Bank should itself be ‘representative.’ As against the mixed Court idea, the Advisory Council has many advantages. It is, for example, fairly obvious that tho directors of the bank should themselves be experts in finance rather than spokesmen for various national interests.

“The net result is that the Government, through the Treasury, has been brought into far closer contact with the City than it was in former and quieter years. The centre of gravity has, in fact, tended to shift away from Threadneedle Street towards Whitehall, and the Government has to concern itself more with details of operation as well as with those of broad policy. “We are not here concerned. with the school of political thought which will be satisfied with nothing short of complete nationalisation. These views are commonly based on a misconception of the bank's present position and the role which it can and does, in fact, play. But, leaving theory and dogma aside, the course of events has created conditions which justify a reconsideration of the constitution of the Bank of England.

of the Government of the day, or that a new governor could be elected without the de facto approval of Cabinet.

“The main need, therefore, is for a codification of what has already become an accepted practice. The exact legal ownership of the bank’s capital is comparatively unimportant. The bank has long ceased to make its profits a major consideration, and the profits arising from the note issue already accrue by statute to the Exchequer. A legal limitation of the bank’s profits at approximately their present level would please public opinion and would involve little Teal change. “There is little to be gained or lost by transferring to tho State the ownership of the bank’s capital, which may reasonably be left as it stands at present. It is of greater importance to make it clear that tho Governor, not the Court, is in control of policy—-as he Teally is to-day—and that the Government has the final word in his np-

“In theory, the bank is a private institution, charged with certain duties, both statutory and unwritten, but controlled by its shareholders, who in theory elect the Governor, deputy-Governor and Court of Directors, and are also ultimately responsible for the appointment and retirement of the bank's staff.

“In practice, certain changes have taken place during Tecent years. The Governor is no longer elected for only two years, for the present Governor has held office since 1920. The present deputy-Governor has arisen from the staff of the bank, thereby