CENTRAL RESERVE BANK

Nelson Evening Mail, Volume LXVI, 18 June 1932, Page 2

CENTRAL RESERVE BANK

“NOT THE TIME TO MAKE A CHANGE” WOULD CAUSE SERIOUS DISLOCATION OPINIONS OF BANK OF NEW ZEALAND In the course of his annual address yesterday the Chairman of the Bank of New Zealand (Mr Oliver Nicholson) made the following reference to the subject of a Central Reserve Bank: There appears to be a growing opinion in certain circles in the Dominion that, in the interests of the country, the establishment of a Central Reserve Bank is essential to control effectively exchange rates and conduct the note currency, and as it is possible that a Bill providing for the establishment of a Reserve Bank may, in the near future, lie submitted to Parliament, the following observations defining the Bank’s views and attitude on the question, may now appropriately be made, it will be remembered that just on two years ago Bit- Otto Niemcycr was invited by the Government to visit the' Dominion to advise on the banking and currency system! Ills report inis been made public together with draft of the legislation which lie recommends should be enacted. The views of such eminent men as Sir Oto Niemeyer and his associate, Professor Gregory, are undoubtedly entitled to the utmost respect; as also tiie views of those whose long and practieay acquaintance with the financial and business needs and the currency system of the country enable them to speak with authority. The unanimous opinion of the Board of this Bank is that whatever may be the merits of the recommendations submitted by Sir Otto Niemeyer, talierc can be no question that this is ".ot the time to make a change in the banking currency and exchange system of this country. Time enough to consider a change" if it be necessary —which we do not admit —when the present depression lias passed away, and conditions have again become normal, otherwise there would inevitably be a serious dislocation.

The principal functions of a Reserve Bank are, according to Sir Otto Niemeyer s report, to exercise the sole right of issuing notes (and so regulating credit) and to maintain the London Exchange rates within the gold points—say, H per cent. However desirable Central Reserve Banks may be in countries carrying very large populations, and in close contact with similar countries, the position becomes quite different when dealing with isolated countries of a small population, which is the case of this Dominion. The experience of South Africa’s Central Reserve Bank, which operates on the lines proposed for New Zealand by Sir Otto Niemeyer, are not encouraging, as that Bank has not functioned successfully in the achievement of the purpose for which it was established. Turning to the question of the safety and elasticity of the existing system of note issues of the different banks in New Zealand, the notes are a first charge on the assets of the issuing bank, and are further secured by a backing of gold and Government securities to the lull amount of the circulation. As to the elasticity of the system, the ease with which New Zealand met the financial upheaval of 1920-1921 leaves no manner of doubt on that point. It would be contrary to fact to say that at present there is any shortage of currency. The fact is that there is no opening for extension of our existing industries, nor for the establishment of many new ones, on a profitable basis, consequently there is no legitimate demand from the public for further currency or credit. We have little faith in the view that a chain of Reserve Banks throughout the world would be of any advantage to New Zealand. In times of stress every country must necessarily treat its own needs as paramount—that point must have been brought home to our Government, when in December last London required, as a condition of renewing four millions of Treasury Bills then about to mature, that the Banks in New Zealand should be compelled to find in London one million per month during 1932 to meet the Government’s requirements there. With all the goodwill in the world towards New Zealand, London must protect its own credit first, therefore it behoves us to look after ourselves. It does appear questionable that as a result of the establishment of a Reserve Bank the Government would by the profit from the note issue of such bank be recompensed the loss it would sustain by tile withdrawal of the note issue from the Joint Stock Banks—that exchange on London could always be supplied on demand in exchange for the Reserve Bank notes and that the controllers of such bank would be better able than the authorities of the Joint Stock. Banks to judge of the measure of credit required to meet the legitimate needs of the country. , This is merely a general expression of our views on the subject, as the Government, so far, has not apparently arrived at a definite decision to proceed with the establishment of a Reserve Bank. It must, however, be assumed that the Government will not decide to proceed with the project until it is satisfied upon mature consideration that it xvill function upon lines which are likely to prove beneficial to, and in the best interests of, the Dominion.