RESERVE BANK AND POLITICS

New Zealand Herald, Volume LXXI, Issue 21912, 22 September 1934, Page 15

RESERVE BANK AND POLITICS

Sir, —The importance of the warning given by Sir Otto Niemeyer in his valuable report on New Zealand banking, that: "The Reserve Bank should at all times be free from fact or even fear of political interference," is day by day coming home to us with everincreasing force. By this he meant that ivhile the Reserve Bank must be governed by the law of Parliament that created it, its policy should not be interfered with, nor should it even be in fear of such interference, by any political party merely to maintain or serve the aims of that party. The government of the monetary system by the Reserve Bank is of such vital importance to the interests of the whole community that its directors should realise that, as our Courts dispense justice according to the law between citizen and citizen, or the citizen and the Crown, so should the Reserve Bank act in the monetary system, even should this mean a breach hetween the bank and the Government, as there is no more justification for interference in the one case than in the other. The most important advice given by Sir Otto Niemeyer was embodied ill section 16 of the Hon. W. Downie Stewart's Reserve Bank Act, where he advised Parliament to make it mandatory nn the Reserve Bank to limit fluctuation from sterling to ppr cent either way, for the obvious reason of ensuring to the New Zealand producers and consumers the best exchange in terms of other countries' goods and services, as practically the whole of New Zealand exports are exchanged through the medium of sterling bills. The greatest injury to New Zealand monetary system was inflicted when the present Minister of Finance denied Parliament this right by altering the bill, ignoring the advice of experienced international authority in favour of the advice of inexperienced New Zealand economists, and handing this important power to the board of directors. While this policy may assist the Government politically, it is in conflict with the best interests of the country, recognising a budgetary position of an apparent surplus of £BOOO, concealing approximately 4.J millions loss on exchange guaranteed by the Government to the Reserve Bank, and in addition heavy losses made by local bodies during the last 18 months. These losses will increase as the export season develops and will be aggravated by any rise in prices of our primary products. The devaluation of our currency has the most deflationary effect on all our prices. Such losses must ultimately be funded and added to our national debt, and be paid for as a contribution to the relief of distress. The sooner this is done the better it will be for all concerned. Then Parliament should demand the reinstatement of its authority that it shall be mandatory on the Reserve Bank to restore the New Zealand poun* 1 to the proud position it held for so rnanv years, leaving the Reserve Bank fre> from fear or fact of any further political interference to keep it there —a condition that must be assured if the Reserve Bank of New Zealand is to take its rightful place in international banking and assist in the great work of international stabilisation —the primary object of its creation. J. Hislop.