POLITICS AND BANKING.

New Zealand Herald, Volume LXVI, Issue 20421, 25 November 1929, Page 10

POLITICS AND BANKING.

Anxiety regarding the state of affairs in Australia has lately been expressed with unusual frankness in London, one commentator having remarked that "the Commonwealth is now facing the practical certainty of a serious economic crisis, the outcome of a wrong economic policy pursued for a number of years, unless that policy is reversed." It would manifestly be extremely unfortunate for Australia if that conclusion were generally accepted, and that confirmation should apparently be given to the prediction by the new Government's attitude to the difficulties of the moment. Yet it has introduced into this delicate situation proposals for the alteration of banking and exchange arrangements which, if Mr. Anstey is regarded as a qualified expositor of its intentions, would aggravate rather than allay apprehension. A few days ago, an unofficial report was telegraphed that legislation is proposed to establish Government control Of gold shipments, as it is thought undesirable that anyone should be allowed to ship gold. Now Mr. Anstey has usurped the Federal Treasurer's function to announce proposals to remove the present restrictions on the proportion of bank notes to cash reserves; the fixing of exchange rates by the Commonwealth Bank instead of by "secret understandings" among the private banks, and an expansion of advances "on good security" by the Commonwealth Bank in accordance with a new policy involving a threat to the private banks that they "must follow suit or perish." It would be unfair to the Commonwealth Government to accept Mr. Anstey's statement at its face value. In important respects, it completely fails to explain the Government's intentions; in others, it is remarkable as an exposition of the Minister's political prejudices and impetuosity rather thanfor any evidence of familiarity with the problems which he answers so dogmatically. The vagueness of the statement is illustrated by the reference to bank notes and reserves. It may mean either a reduction in the present reserve stipulations or literally the removal of all restrictions upon paper currency. Tho latter would, of course, be simply an invocation of calamity. Yet, there is no evident need for altering the statutory arrangement, which requires tho Commonwealth Bank, the sole issuing authority, to maintain a reserve of 25 per cent. According to the latest available return, the notes issued at November 11 totalled £42,878,000 and the gold holding was £22,446,500, the ratio being 52.35 per cent. Four millions of the gold are earmarked for shipment to London before the end of the year, but even with that reduction there will be an ample margin against any legitimate expansion of the note issue. The chairman of the bank recently explained that its policy is to make its "redundant gold reserves" productive by placing them where they can be usefully employed, and gave his assurance that this could be done "without impairing adequate gold reserves against note issue." Any conclusions regarding the regulation of exchange may be reserved until tho Government's proposals are explained in an intelligible fashion. Mr. Anstey's observations regarding the financing of industry will also be heavily discounted on account of his rhetorical criticism of the banks, his advocacy of American methods as a model, as though they were based on uniform policy and practice, and his overlooking of the fact that although the opportunity to provide "a great national service" in this field has always been open to the Commonwealth Bank, its loans under all headings, after nearly twenty years' development, amount to only £13,500,000, while the so-called private banks have made advances to the aggregate amount of £299,000,000. If Mr. Anstey was impatient merely to get publicity, he has succeeded; but he appears to have done a poor service to his colleagues,;