THE RESERVE BANK

Nelson Evening Mail, Volume LXVI, 26 December 1933, Page 3

THE RESERVE BANK

TRANSFER OF GOLD FINANCE MINISTER ISSUES PAMPHLET A pamphlet on “The Reserve Bank of New Zealand and the Gold Question. issued by the .Minister for Finance, the Et. lion. J. G. Coates, deals at length with the attitude of protest adopted by the trading hanks on the section of the Reserve Bank' Act which stipulates that tin hanks shall he paid lor the gold In he transferred In the Reserve Rank at hook value--C 3 17s 10id a standard ounce. “Gold acquired hv banks in New Zealand was paid for in New Zealand currency,” Air Coates states. “Bullion would be shipped to England, coined, and some of it returned to New Zealand to lie held as a- reserve. These would all he paper transactions. The hanks sav now that they paid sterling for their gold, and that therefore they should get sterling in return. The only argument to substantiate this is that some of the coins were minted in England. But this does not affect the question as to what was paid for that gold. Bullion is presented and gold coin returned. The banks in New Zealand give New Zealand currency for bullion. If they now claim sterling the New Zealand gold-miners could also claim sterling, as it was they who produced‘the gold in the first place, and the present liotc-holdors could equally claim sterling,'as, but for the Government proclamation, they have the right to claim the gold. “The hanks want to lie paid in sterling because when' they acquired the gold, sterling was at par with New Zealand currency, but it was also at par with Australian currency and the dollar and the. franc. On the argument nl the hanks, the Government could could just as easily pay them In Australian money or dollars or trams.

ASSETS UNALTERED “Tim point i s that the .banks paid New Zealand currency for gold, and the-position of no shareholder will be altered by taking the gold at this value, .the total ot assctls i'll the balance-sheets ot the hanks will remain exactly the same after the gold lias been taken over and paid for by the Reserve Bank. It should he noted that banking taxation is based on the average of each quarters assets and liabilities. For this purpose the banks have valued their gold assets at mint price ; consequently they have been taxed on this value only. “In fact, the hanks will he better of!. • They will be relieved of a dead asset of more than £5,000,000 which gave them no profit, hut oil which they were taxed. They are' also relieved of a note-issue on which they were taxed. Except for the minimum amount to be placed with the Reserve Bank, any extra reserve can he made profit earning. It will thus be seen that the banks will gain by the Reserve Bank taking the gold at hook value. AN UNWELCOME SUGGESTION “The suggestion by the banks that 1 they would be willing to accept payment for the gold on a pound-for-pound basis, in sterling would mean, if accepted, that the interests of the people of the Dominion as a whole would be materially sacrificed. This the Government is not prepared to do, as on the present exchange basis it would mean a windfall to the banks of £1,125,000 1 equal to approximately half the prolits on the gold if sold at present market values. The banks emphasise that they would not ask that the Government’s indemnity arrangement, covering accumulated London funds, should extend to this particular sum. That, however, ’• is an immaterial point. The hanks I could carry (his out and still make j their profit by disposing of the sterling j to Australia, thereby depriving New Zealand of over .£5,000,000 of its London credits.” Air Coates cites several examples—the cases of France, Belgium, and Italy among others—where stabilisation of the currency resulted in a profit which in each case went to the state either immediately, or at a later date. The Minister stales: “The almost universal return to the gold standard j which followed the prolonged post-war. period of currency instability lias pro-! vided many examples of major linan- , rial reconstruction, involving in sumo cases the creation of new central hanks i and in oi hers* Ihe reorganisation of ex-! listing fiistilulions. In all countries j where currency depreciation had occur-: red stabilisation at a lower level until- : rally involved the revaluation, in terms of the new currency unit, of such assets as gold holdings which had retained their external value. This revaluation in all eases produced a ‘book profit’ to the hank concerned which, almost witli-

out exception, was taken by the State and in most inslanees utilised for re.hieing the Stale's debt to Hie central hank.’’

EXPERT OPINION The pamphlet also quotes extracts from the report to the Cabinet by the New Zealand delegation to the World Economic Conference, as follows: ft is the established practice of Governments to take any profit or loss resulting front a revaluation of currency in terms of gold. The highest authorities in London and Europe have been consulted on this matter, and their opinion is ununimeus: The only fair and equitable price at which gold can he Laktr.i over from commercial hanks by a central bank or by a government, the only price that can he justified. is the mint price. Any .Profits due to the revaluation of gold should go not (o the note-issuing banks, but to the Government. ”A central bank official, whose authority is beyond dispute, and who is familiar with rerenl developments throughout the world, writes, iulcr alia, on Ibis point. : 'I cannot think of any ease in which the. government hits not taken I he profit on (.be revalualion ol noteissuing hanks’ gold reserves, except iy the ease of Greece, where a great mistake was made, as a rosrdt of which the Bank of Greece (a central bank) has never been able to function successfully. There is one ease, that ot Finland, where (he profit on the revaluation of flic gold holding tl stabilisation was used to increase the capital ot the Rank of Finland (a slate ceulral bank). ‘'The conclusion reached on the matter is therefore that the Government should take over the gold at par value. “Following further discussions on ceulral hanking with the British authorities, the delegation report the relevant oxoression ol opinion on the gold quest ion : ‘The reserve hank must enter up the. gold at hook value . . . any profit, or loss accruing from the adjustment should he taken by the Government. This method might prove politically impracticable, but no eveuU could justify any payment to the oth"

or hank's for the gold taken over involving ait amount greater than the present book value of the gold. Any profit or loss accruing on transfers of this kind should be taken by the Government. If the gold is taken over at par tiie banks will suffer no loss. No case whatever can he made out for the hanks to share in this gain.' " NO INTERFERENCE In a summary of the position in his preface to the pamphlet, .Mr Coates states: "T'lie hanks obtain their charters by legislation, they acquired their gold liecause of legislation, they held this gold as a hacking for the notes because of legislation: the people were prevented by legislative enactment from claiming a sovereign for their bank note; and by legislation also the people were prevent eel from exporting gold and silver coin from this country. Legislation now proposes that the community shall resume its rights. It surely must he abundantly clear that Lie whole position is, and always has been, governed by legislation; and no exception can now be taken on the score of alleged legislative ‘interference/ “During the discussion on the transfer of gold 1 stated that if any new facts were brought to light which proved that the hanks were being subjected to unjust treatment the Government would be prepared to reopen the question. No hew facts have been adduced.”