Nash Reports On Currency, Credit

Northern Advocate, 26 May 1949, Page 4

Nash Reports On Currency, Credit

WELLINGTON, Thu. (Sp.).—A suggestion that the state should be the sole authority for the issue of currency and credit was put forward at the Labour Party conference yesterday. The proposals were the subject of a long report by the Minister of Finance (Mr Nash).

Several important factors in the determination of prices could not be determined by the Reserve Baik, said Mr Nash in his report. The bank could not control import and export prices, the velocity of circulation of money, the distribution of national income, the purposes for which money was spent, the amount of saving, the direction of investment, or the efficiency and productivity of capital, labour and management. Mr Nash dealt witlj the expansion of bank credit which had occurred since 1930. fie said that at the present time aggregate advances and New Zealand investments of the New Zealand banking system were £92,321,000 greater than in 1930. NET EXPANSION He quoted the following table showing the net expansion of bank credit since 1930. RESERVE BANK 1939 1919 Incr. £OOO £OOO £OOO Advances (to state) Marketing 7,431 4,32-1 >”3,107 Other 12,000 33.000 20,000 Other advances .. Invest, in N.Z. .. 2.860 27,042 24.170 £22.297 £74,234 £51,037 * Decrease TRADING BANKS Advances 55.517 89,944 24,427 Investments 10.329 10,280 5,957 £05.840 £100,230 £40,384 Mr Nash said that the Reserve Bank figures of March included £20,000,000 provided for the Government as compensation for the exchange rate appreciation. There was also.an item of £4,868,000,. consisting of loans to France and Czechoslovakia. If these two items were omitted, the net aggregate expansion of bank credit since 1939 was £67,453,000, made up of £27,069,000 by the Reserve Bank and £40,384,000 by the trading banks. CAUSES. The second question which Mr Nash answered in his report was: What were the causes of expansion in bank credit? Dealing with the Reserve Bank he said that the increase of £26,000,000 had arisen largely in connection with the financing by the Treasury ol the construction of state houses. Apart from the £20,uu0,000, the increase in investments represented repatriation of overseas debt. Referring to the trading banks, Mr Nash said that, of the total increase in their investments of £5,957,000, £4,368,000 represented loans to the Government and £1,589,000 loans to local bodies. The increase of £34,427,000 in trading bank advances was due to several factors. These included expansion of production and an increase in the value of external trade. ! Mr Nash added that variations in trading bank advances also arose from seasonal factors. Higher levels of prices and taxes tended to increase the level of the seasonal demand. JUSTIFICATION. The Minister also answered the question whether the expansion of bank credit was justifiable. He said that this justification was to be found in the essential financial needs of the Government and those engaged in production and trade. During’ the nine financial years from 1940 to-1948 the Government had found it necessary to obtain from all sources a total revenue of £1,110,000,000. Of this total taxation had provided £822,000,000 and borrowing £228,000,000. The total amount borrowed by the Government from the banks was £35,500,000, of which £27,000,000 was borrowed from the Reserve Bank, and the balance from the trading banks. This was only 31 per cent of the total revenue raised during an extremely difficult war and post-war reconstruction period. He claimed that this was a remarkable achievement, which compared favourably with other countries. The increase in aggregate trading bank advances had been necessary to provide essential shorter finance for those engaged in the expanding production and trade of the Dominion. NOT UNREASONABLE The rise of 55 per cent in the aggregate advances of trading banks was neither unreasonable nor deplorable when it was considered that the value of external trade had increased by 143 per cent, since 1938, and that there had been considerable increases in both the volume and value of total production. “Had it been desirable to do so the Reserve Bank, within its present statutory powers could have prevented this rise by fixing rigid maximum limits, but this would have been unwise and would have done more harm than good.’’ added Mr Nash. “In accordance with the Government’s monetary policy the Reserve Bank has taken steps to ensure that trading bank advances are not available for speculative or non-essential purposes for borrowers whose financial needs can be met from non-bank sources.”

The Minister then dealt with the fourth question of whether the Government had been able to control the expansion of credit since the outbreak of war.

He said the power of the Government to control the expansion of bank credit was undeniable.

If it became necessary to do so the Reserve Bank could fix limits to the amounts of advances made by the trading banks.