STERLING EXCHANGE

New Zealand Herald, Volume LXXI, Issue 21906, 15 September 1934, Page 16

STERLING EXCHANGE

NEW ZEALAND SYSTEM DOMINION GOLD RESERVES EXPORT TO LONDON ADVISED [BY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Friday "Although tho original banking legislation of the Dominion was obviously drawn up to govern operations on a complete cold standard, trading conditions led to tho adoption of a sterling exchange standard," states tho Monetary Committee's report. Although gold reserves had been held in New Zealand by the banks and gold coin was in circulation up to 1914, it was pointed out in the Treasury's statement on the New Zealand banking system that the only conclusions to he drawn from an examination of the facts were as follows: (1) That tho de facto system is and always has been a sterling exchange standard. (2) That it has centred round an approximate fixed par of exchango between tho British and tho Now Zealand pound. (3) That our external trade is cleared through London, and tho London balances of the banks are the chief factor in regulating the volume of credit in New Zealand. (4) That the habit is strongly developed in New Zealand and notes and coin ard very subsidiary, being used for little beyond payment of wages, petty disbursements, and till-money. (5) That the legislative restrictions on the note-issuO have been quite inoperative, as the demand has always been considerably less than the maximum amount the banks were in a position to issue. (6) That the volume of credit has regulated the note-issue, and not vice versa. "Under the sterling exchange system," continues the report, "the banks undertake to provide sterling on demand in exchange for New Zealand currency, and the credit structure must be kept within such limits in relation to the exchange reserves held in London as experience has shown to be safe. In fact, the pressure on the London funds of the banks has been the prime factor limiting the amount of credit that can be created in New Zealand. "However, these London funds rise and fall accordine to the state of our external trade, which has been also the basis on which our whole economic structure has been built. Accordingly, given wise administration, the volumo of credit should generally be sufficient to meet the needs of trade and industry. "The gold reserves held in the Dominion have never played any real part in the monetary system, but were keptto comply with statutory requirements and support a circulation of gold coin. With the passing of the Reserve Bank of New Zealand Act, which overrides the previous legislation, the gold has ceased to be of any practical use, and it would be of considerable benefit to the Dominion if what is now a 'dead' asset was promptly exported to London and converted into liquid interest-earn-ing assets. "Tho Reserve Bank would then hold the funds where they would be most useful, while the substantial profit likely to accrue from the sale of the gold when credited to tho Public Account in terms of section 15 of the Reserve Bank Act would assist materially in relieving the strain on the public finances at a critical time, and thus be of great benefit to tho community." LENDING BY STATE SINGLE BOARD NEEDED AVOIDING OVERLAPPING [BY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Friday The establishment of a unified Government Mortgage Board to take over the loans administered by the Lands Department, the State Advances Office and the Rural Intermediate Credit Board is among the recommendations contained in the Monetary Committee's report. Reference is made to the overlapping which exists in the operations of the various State lending departments. The Rural Intermediate Credit Board confined its operations to relatively shortterm loans, but the State Advances, with one board, and the Lands Department, with two, engaged in long-term lending on mortgage for very similar purposes. All three departments made advances against chattel securities. In times like the present securities had to be closely supervised if heavy losses were to be avoided. The Lands Department already had a field staff and the State Advances Office had ro&mtly found it necessary to establish district offices and would probably have to provide a field staff later. This meant a costly duplication of machinery which could be largely avoided if the two organisations were combined under one board. Amalgamation, in addition to permitting greater economy in administration, would avoid difficulties on the part of farmers involved financially with two or more departments. The existence of three separate branches to deal with chattel mortgages to primary producers could not be justified and increased efficiency and better control would result from the handling of all farm loans by one board controlling an efficient field and office organisation. The new board could be largely modelled on the organisation of the Public Trust Office and the Rural Intermediate Credit Board with wellestablished 'branches throughout the Dominion and trained staffs of valuers, supervisors, lawyers and accountants. The total investments in the Lands Department, the State Advances Office and the Rural Intermediate Credit Board amounted to about £(58,000,000. It was necessary to spread tho risk evenly and equitably in the interests of all concerned. At present the State Advances Board was at a disadvantage in deciding which mortgagors deserved assistance and good men were often unduly penalised. The situation of the dairy farmer in particular called for action on a more comprehensive basis. Tho proposed board should review farm securities and investigate the possibility of adjusting mortgage charges when prices were low and making up the leeway when they improved. It might bo possible to finance with mortgage bonds, loans to be of the long-term amortised type, with interest adjusted to current rates at, probably, five-yearly intervals. COMMITTEE MEMBERS rBY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Friday The members of tive Monetary Committee are:—Mr. J. A. Nash, chairman, the Hon. W. Downie Stewart and Messrf. A. J. Murdoch, J. N. Massey, F, Lye, C. H. Clinkard, H. Holland (all Government M.P.'s), H. M. Rushworth (Country Party), F. W. Schramm, ,J. W. Munro and F. Langstone (Labour).