A CURIOUS GUARANTEE.

Northern Advocate, 20 December 1920, Page 2

A CURIOUS GUARANTEE.

Last week the Government of New Zealand made an Order-in-Couneil authorising the banks to issue additional notes to the amount of the advances they may make on wool held in the stores or by farmers. This apparently is the Government's way of guaranteeing these advances, as it was authorised to do during the last session of Parliament, and it is a somewhat remarkable step to take. In 1914 the value of the bank notes in circulation in the Dominion was about two millions sterling, but it has teen increased to more than seven millions, which is a very large sum for such a country as New Zealand. The inflation of the currency tin ough the circulation of this vast amount of -paper money is stated by many authorities to be a veiy important factor in increasing the cost of living, and deflation of the currency p declared to be the ideal to aim at. But

if large quantities of wool are held in the Dominion this season and the banks advance substantial sums upon the security thus offered the effect of the Government's action may bo to increase the inflation of the currency and so add again to the cost of living. The Government perhaps may say that tho banks are not likely to have to meet heavy demands for advances and therefore will make little use of their power to issue notes, and it may be argued with good reason that the banks have already taken stops to deflate the currency by keeping a very tight rein on borrowers and refusing a good deal of new business. But the. amount of the advances to be made cannot be surmised: we do.not know how r much wool will be held, how many of the growers who hold will require the assistance of the banks, nor what tlie value of the wool will be. The position is so uncertain that for all we know the Order-in-Council may. make no difference to the note issue, or it may necessitate so 1 largo an addition as to affect the whole country very seriously. If the banks should "be asked for large advances tho policy of holding, wool might do more harm than good. The war has left many European countries in a condition of poverty. They have very little money available, and therefore cannot consume raw materials, at the high prices that have been ruling, as rapidly as they did during tho war period. In order that consumption may be stimulated prices must be allowed to fall; commodities must be brought within the reach of the poorer peoples of the world. To hold back commodities in order to force up prices is a futile proceeding. It may meau that in twelve months New Zealand will have another large accumulation, of wool to offer and some of the customers will still be unable to pay the prices demanded. Those growers who allcw their wool to go for what it will :fetch this season may be -better off in the long run than those who hold their r:ips. Apart, however ,f rom the question of the growers there is. the welfare of the whole community at stake, and we cannot but entertain grave fears as to whether the Government's latest uction is in the best interests of the Dominion. We can only hope that it will not mean a larger increase in the ?>ote issue.