Reserve Bank’s Year Reviewed A Note Of Caution Sounded

Northern Advocate, 27 July 1938, Page 4

Reserv e Bank ’s Ye a r Reviewed A Note Of Caution Sounded

i Spec in ! to "Northern Advocate.' M WELLINGTON. This Day. rpHE ANNUAL REPORT OF THE ROARS?. OF DIRECTORS OF THE “ RESERVE RANK OF NEW ZEALAND WAS PRESENTED IN THE HOUSE Of REPRESENTATIVES YESTERDAY BY THE MINISTER OF FINANCE, THE HON. W. NASH. THE REPORT, WHICH REVIEWS THE ACTIVITIES OF THE BANK FOR THE FINANCIAL YEAR ENDED MARCH 31. 1033, IS SIGNED BY THE GOVERNOR OF THE BANK, MR LESLIE LEFEAUX, AND THE DEPUTY-GOVERNOR. MR W. L. WARD. ••An important element in the economic development of New Zealand bar been the fact that die products of expanding pastoral industries have found in Great Britain a secure market, unhampered by restrictive trade policies,” the report states. "At present, when the channels of international trade are obstructed by *the w idespread adoption of restriction on trade and foreign exchange, it is gratifying to note that New Zealand still holds a favourable position in the British market. During the past year. 85.8 per cent, of the total exports of New Zealand were shipped to British countries, including 79.5 ocr cent, to Great Britain.

' Increased Values. "The total value of imports increased considerably during the year, partly due to a rise in prices, and partly to increased quantities. These additional impoits were accounted for to some extent by increased consumption, but there was also a considerable buildingup of importers’ stocks of certain commodities. Notable increases in both value and quantity occurred in the import of motor vehicles, iron and steel goods, and machinery. An unusually large import was that of 3,000.000 bushels of wheat, rendered necessary by the reduced yield of local wheat crops.” The report states that banking figures have naturally reflected the general rise in prices and in business turnover. increases having been* recorded in note circulation, advances and bank debits. The percentage of ! trading bank advances to deposits has [risen from 68 per cent, in March. 1937, !to 82 per cent, in March, 1938, Post Office Savings Bank deposits during the year exceeded withdrawals by £3.400,000. and accumulated deposits, including interest, have risen from £58,000,000 to £63,000,000. Role of Public Works. “The maintenance of a high level of business activity has naturally reacted favourably on Government finances,” the report added, “and, in spite of the absence of borrowing overseas, it hasbeen possible to finance an extensive programme of Public Works expenditure. partly by revenue from taxation, partly by loans from the Post Office Savings Bank, and other Government departments, and, as regards housing, by advances from the Reserve Bank, which, however, have been temporarily repaid out of fluids available from other sources. Public Works construction has, therefore, been an important factor in determining the distribution of capital and labour resources and the nature and volume of employment. Advances Repayment.

•‘With the exception of the Primary Products Marketing Department overdraft, all advances made by the bank to the Government were repaid by the end of the financial year. This restraint in the use of the Reserve Bank credit for financing public expenditure is regarded by the board as a wise course to have followed during a year of relatively high export values, especially as there has been a large increase in trading bank advances and a decrease of £7,800,000 in New Zealand currency in the combined net overseas assets of the Reserve Bank and trading banks. "While not wishing to comment on. the question of Public Works generally, the board regards if as highly desirable, on financial grounds, that the extent of such works should be regulated as far as practicable according to the stale of employment in other directions—a slowing-down being arranged when the demand for labour for other purposes is relatively satisfactory and an acceleration during periods of comparative business inactivity. Board’s Advice. "It is considered, however, that in neither event should reliance be placed on the requisite funds being provided by the Reserve Bank when they can reasonably be derived from other sources, unless and to the extent that any expansion of the currency is indicated at the time. If. however, recourse is to be had to additional expenditure on Public Works during periods of relative trade depression, the board would stress the importance of avoiding any undue expansion of credit when the trade position of the Dominion is favourable. In the ordinary sense, unless overseas funds are .allowed to accumulate when the proceeds of exports—and consequently the national income—are at a high level, it would be difficult to maintain purchas-ing-power—involving a strain on the overseas position—if and when the Dominion’s overseas trade position materially deteriorates."