THE New Zealand Herald AND DAILY SOUTHERN CROSS. THURSDAY, OCTOBER 12, 1911. THE STATE NOTES BILL.

New Zealand Herald, Volume XLVIII, Issue 14809, 12 October 1911, Page 6

THE New Zealand Herald AND DAILY SOUTHERN CROSS. THURSDAY, OCTOBER 12, 1911. THE STATE NOTES BILL.

The Government has been unusually cautious in its determination not to press the passage of the New Zealand Notes Bill through the present session, and we may hope that a full consideration of the note situation may induce the abandonment of the measure altogether. The difficulty appears to be that a small group of economic theorists have convinced themselves that a State note system is eminently desirable, and that they have ' managed to persuade the Government into the proposed Hep against what' must have been the better financial judgment of some Ministers. Everybody , knows that the banks are not greatly enamoured of the present very expensive privilege they enjoy of issuing " paper money." They pay to the State three per cent, upon all notes in circulation, so that the Government is a very well paid sleeping partner in the undertaking an additional one per cent.' 1 is absorbed by cost of printing and other expenses; and that some considerable provision has to be made by the banks for meeting demands for gold is shown by the clause in the Bill which provides that the ; Government must hold in gold one-quarter of the value of all State 'notes issued up to £3,000,000. The actual cost to the banks is therefore about four per ' cent., together with the. lost earning power of the necessary gold reserve; while notes are more inconvenient to handle than gold. The State now receives the above-mentioned three per cent, upon all notes in circulationwhich percentage amounts to £48,000 upon the -£1,600j000 now circulating— does so without undertaking • any responsibility or being troubled in any way by the questions of circulating . and of redeeming. The hypothetical gain of the banks by loss and destruction of notes is but one of the pleasant' legends which have come down to us from past ages and does not enter into the consideration of the problem by practical, men. If the Government undertakes to issue State notes in place of the present bank notes it will lose at once the annual £48,000 now paid to the Treasury by the banks, : - must assume the 1 cost . of, printing "and ; preparing ' for circular! tion—equal to one per cent. —and! if j it has as great a note circulation.,! the banks must hold - £400,000 in gold to redeem any notes presented! for- payment. The loss of revenue and cost of . circulation , would thus amount to over £60,000 annually, and the Government would have in return the use of £1,200,000. Borrowing money at five per cent, which ; had to be returned to the lender on demand would not be . considered good financial business, and yet it is practically what the Government proposes to do in the New Zealand Notes Bill. It is easy to understand why Sir. Joseph Ward is not eager to rush such a scheme through the House; the difficulty lies in understanding how he has been persuaded . to enter upon a business which, the banks, with all the machinery at their disposal, for making the best of it, are so visibly indifferent about. 'i

From the point of view of the Government there is no obvious advantage and many obvious disadvantages in a State note issue unless we assume the "possibility of it developing into something very like that "paper currency" against which Sir Joseph Ward places himself on record. 'From the point of view of the public there is only one advantage, and that an • extremely problematic one, for the conditions of banking in New Zealand make a bank note issue practically as sound as a State-note issue,, for if all the banks suspended payment the State could hardly produce a sovereign for every pound note presented. The public, on the other hand, would lose the . incalculable advantage they now have in the free and unhesitating" exchange between. paper and gold. Unless the Government proposes to institute a cumbrous and costly system of redemption offices, whereby in every commercial centre the owner of a State note could obtain a sovereign in exchange—as he can with bank notes—the effect might be that State notes would fall below par excepting at Wellington. One may declaim in Parliament of! notes being " legal tender," but all the Parliaments in the world cannot compel gold to be sold at below its market value or paper to be bought at more than its commercial worth. New South Wales found in 1893 that when certain irredeemable notes were made legal tender the sovereign immediately rose to a premium, and if a pound note 1 can only be exchanged for a sovereign at Wellington it is hardly likely to be worth a sovereign everywhere and always in New Zealand. Tourists and; travellers may be confronted on Queen-street with ' the money changers' signs which flaunt themselves in : the f seaports of ; paper money countries, and the theorists may have another theory, to account hot it/ -we? near, -brittle? .6anacua4.

State note issue, but Canada ' was never a gold country *in the sense that England and New Zealand are gold countries nor was when State notes were introduced—a country where specified bank notes, circulated freely from end to end and could be freely exchanged for gold at any centre. The Canadian State note was a universal note replacing >an inferior local note, but a New Zealand State note would, be a note replacing a superior and more freely . exchangable arid equally universal note. The banks, we are told by Sir Joseph Ward, an to buy the State notes and circulate them —but what will happen if the banks do not buy them, as there is no particular reason why banks should? They will be issued, then, we may presume, as " advances to settlers, . or through the Post Office Savings Banks or by some similar device. But if there is a preferential demand for gold, as there must be in a gold country such as ours, should there be any difficulty, in exchanging notes for gold, their drift will be always back to Wellington. , The . note system which we possess is satisfactory. There are indications that it may gradually give place to an unmodified gold circulation. There is no reason why it should be ousted and replaced 'by any system which does not offer gold in every centre large or small;' and there is no reason why the country should be put to the expense of such an arrangement when the existing system does all that is wanted.