THE RESERVE BANK

New Zealand Herald, Volume LXXII, Issue 22137, 17 June 1935, Page 12

THE RESERVE BANK

Sir,—While one cannot congratulate New Zealand on the first gear's operation of the Reserve Bank, its policy will be entirely satisfactory to Australian banking interests. The principal function of a Reserve Bank is not acting as bankers for the Government and trading banks. This part of its activities is only the means to an end. that end being to enable the bank to have control of the monetary system, and to use that control in the best interest of the country. Its primary service is to restore and maintain the value' of the New Zealand pound ns close to the value of the pound sterling as possible. Had this not been possible, then we could not blame the bank, but far from this being the case, the annual report shows that a surplus of sterling assets held by the bank is some £17,500,000. and £12,500,000 is also held by the trading banks. This alone condemns the present rate of exchange as uneconomic. The total of some £30,000,000 assets held in London, while it cost the people of New Zealand some £24 10s per cent to put it there, has earned less than 1 per cent during the year. The irony of it is that a Chinese merchant in Shanghai can sell his silk to an Italian hat factory, and using the short term loan market can use our sterling funds in London to facilitate trade between Italy and China, paying something in the vicinity of £1 per cent for the use of these New Zealand funds. But, if a New Zealand merchant and a British manufacturer wished to use them to facilitate trade between the Motherland and New Zealand, then the rate is £24 30s per cent, or 24} times greater than the rate charged the foreigner. Why koep funds in a market so unfavourable, when the people of New Zealand are willing to pay 30s per cent for their use? The repayment of treasury bills owing by the Government to the Trading banks by the Reserve Bank brings to a close a financial scandal, but this has not reduced our national debt by £20,000,000, as was claimed bv the acting-Minister of Finance in his financial statement. It has only transferred the debt from the trading banks to the Reserve Bank, where it is still guaranteed by the Government. Wo have no knowledge as to how much the Government lias been relieved by the change. We are assured that the Bank of England has no influence on the Reserve Bank of New Zealand. This, I think, is unfortunate, because if it did exercise some control we would be freed from the disastrous influence of Australia, and the experience and guidance of the Bank of England in our monetary system would be invaluable to Now Zealand. How long are we to wait for Australia to put her house in order before our Reserve Bank will restore our pound to its full buying power, and with it the prosperity of the country 'i In failing to do this, the Reserve Bank has failed to function as a Reserve Bank, but has assumed the role of a State bank, acting purely in the interest of a Government policy, and in taking this power, which it has no right to do, it sacrifices that which, in the interests of the good government of our monetary svstem, it should most strenuously guard. J. Hislop.