PROPOSALS CRITICISED

New Zealand Herald, Volume LXX, Issue 21596, 14 September 1933, Page 12

PROPOSALS CRITICISED

OPINIONS OF BANKER . MERIT OF PRESENT SYSTEM LESSONS FROM OVERSEAS [BY TELEGRAPH —PRESS ASSOCIATION] WELLINGTON. Wednesday Interviewed in reference to tho statement made by the Ministor of Finance, tho lit. Hon. J, G. Coates, on tho subject of the Reserve Bank Bill, Sir Henry Buckloton, general managor of the Bank of Now Zealand, expressing his personal opinion, said he could not agree that Mr. Coates' statement would enable tho public of Now Zealand to understand fully tho effect of tho bill.. For instance, Mr. Coates did not say how the revenue of tho country' would bo affected if the bill should be passed. A detailed statement of tho losses and gains to revenue likely to result from tho passing of the bill should bo made public.

Mr. Coates had not alluded to the heavy commitments made by tho banks to finance the Government. In justice to the banks, ho should do so. "Tho Minister complains of tho rate of discount charged on Treasury bills," said Sir Henry, "but lie does not say that by a special and unusual arrangement for rebating bills, the Government obtains a substantial reduction of tho rate, nor does he say that the banks aro willing to reduco tho rate provided the banks are put on tho samo footing for incomo tax as other joint stock companies.

State's Interest in Bank "It is also important to bear in mind tho proprietary interest of the State in the Bank of New Zealand. Of tho bank's paid-up capital of £6,328,125, the State owns one-third, viz., £2,109,375. Since it became a shareholder, tho State has received dividends from the bank aggregating £3,515,878, equal to 102 per cent per annum.

"Based on the latest dividend and valuing gilt-edged security on a 4 per cent basis, the market value of the State's interest in the bank may be set down at £4,687,475, a goodwill of no" less than £2,578,100. It is obvious from these figures that anything which might detrimentally affect tho Bank of New Zealand is an important factor which should be taken into consideration when enacting legislation affecting the existing banking system. "The Government appoints four of the six directors of tho bank, thus ensuring that the policy of the bank is what its board believes to be in the best interests of the country. South African Experience

The bill provided that the Reserve Bank should be exempt from taxation. There was only one Reserve Bank in the British Empire on the lines proposed for New Zealand, namely, the Reserve Bank of South Africa. Owing to Britain going off the gold standard in September, 1931, the South African institution lost in a short period nearly £1,500,000, although it was true that much of that loss had since been made good (at the expense of South Africa), by working on the very wide margin between the buying and selling rates of telegraphic transfers on London. The Reserve Bank system was instituted in the United States in 1914. 12 such banks being established. Those banks failed to regulate credit, to control interest or exchange rates, to check the wildest speculation or to prevent the United States going off tho gold standard. Further, last year, the whole of tho banks in the United States suspended payment for 10 days and some thousands of them, had gone into liquidation. System in Australia

In Australia, the Commonwealth Bank, purely a State institution, acted in some respects as a Reserve Bank, but it could not be said that monetary conditions there had been as stabla as in New Zealand.- It allowed the State Savings Bank of New South "Wales, an institution with over £55,000,000 of deposits, spread over nearly 1,000,000 depositors, to suspend payment. Many of the depositors suffered much loss through having to sell their deposits and many more suffered great inconvenience until some after the suspension the Commonwealth Bank took over the Bank. ."Monetary conditions the world over are so unsettled and the outlook is so obscure," Sir Henry eontinued, "that to interfere with the banking system that has served, and is still serving, the country so well would be most unwise." Sir Otto Niemeyer had stated that the establishment of a Reserve Bank in New Zealand would provide an instrument for co-operation with the central banks of other countries, and that at present there was no suitable point o? contact with New Zealand. Sir Henry asked what need was there for New Zealand to be in contact with the central banks of other countries, save England. An Example in 1031 The London authorities found no difficulty in establishing contact with the New Zealand banks when, in November, 1931, the Government was informed that, as a condition of renewing £4,000,000 of Treasury bills then about to mature, "you must compel-* not ask, but compel—the banks in New Zealand to find in London £1,000,000 a month during the following 12 months to meet the Government's requirements there." This the banks agreed to do, because the credit of the country was at stake. If the dictatorial attitude of the London authorities in 1931 was an examplo of what New Zealand might expect from contact with the central banks of other countries,, the less tho Dominion had to do with tho latter the better. The banks made extremely heavy commitments to finance the Government's requirements, and the question of Government finance and the ability of the Reserve Bank to finance tho Government to as great or greater extent than the associated banks wero matters of major importance.