MODERN BANKING

New Zealand Herald, Volume LXXII, Issue 22211, 11 September 1935, Page 17

MODERN BANKING

ITS USES AND FUNCTIONS BORROWER AND LENDER SERVICE TO COMMUNITY ' BY J. JOHNSTONE No. 1. "A debtor nation," says J. M. Kevnes in his interesting way, "does not love its creditor," and individuals, it, mnv be said. - do not, in a general ■n-jiv love money-lenders. Long ago an immortal genius gave us Shylook and jn the imagination of all of us the lender still suffers. Individuals must vary, and when we meet a lender in the flesh he may be lovable enough, niav, in fact, be our dearest friend vho has helped us out of our diflicultv by granting us the use of his substance, but a bank is not. an indihut an institution, run by officials, and governed by rules —a robot Shvlock. without heart or affections. Yet a bank, though thus popularly regarded as a lender of an unattractive type, is primarily a borrower rather than a lender. Originating als the repositories of the people's savings the careful guarding of the spare resources of the community is still the primary function of banks. To make these resources available to commerce and industry, in place of merely hoarding them, is a secondary function not less important than the first. A Useful Servant Every day both trading and savings banks gather in driblets the cash the owners do not immediately need, and every day the cash so deposited is paid out either to the owners or to borrowers, and so where cash is not needed " it is stored in safety, and where requ..ed it is dealt out. and' important needs of the community are met. With modern means of communication debts are constantly contracted to distant creditors. Many thousands may at any time be owing by debtors in Auckland to creditors in Wellington, and about as much may be due from Wellington to Auckland. To transmit both amounts in cash would entail considerable cost and risk, but with banking facilities each debtor draws a cheque on his own bank, and transmits it, almost v/ithout cost or risk. The banks balance the amounts against each other, only the balance owing is sent from one centre to another, and thus a vast amount of debt is liquidated with a minimum of risk «nd trouble. Overseas Trading Exporters and importers are even more indebted to banks. When the exporter sells his wool to Jones in London for £IOO he draws a bill of exchange on Jones for that amount. This bill is merely an order to Jones to pay v the exporter £IOO in, say, six months' time. Jones, on receiving this instrument, writes "accepted" across its face, signs it, and returns it to the exporter. The exporter then becomes entitled to £IOO, to be paid in London on the due date, but having no need of money in London, and having urgent need of money in New Zealand, he takes his bill to his bank and receives its value in New Zealand currency or bank credit. ; A firm, of importers has about the eam'e time purchased goods in London for £IOO, but possesses no funds in London though fairly well supplied with New Zealand bank credit. With a portion of this credit the importing firm will purchase from the bank the £IOO originally sold by the exporter and so the requirements of both parties are met. . . . Incidentally, it may be pointed out that the sale of export credits to increases the deposits, or diminishes the advances, of exporters, while the purchase of these credits by importers decreases their deposits or increases their advances. Hence, the excess or exports of recent years has created an excess of deposits over advances. Oash for the Touriat Just as when goods have been purchased from a foreign community the currency of that community must be obtained for payment, so. when the modern man travels, he must obta n for his expenses the currencies usedjn the lands he visits. When he travels in Britain he will spend . Bterl \ n ? ] ' France francs, in America dollars. How are these moneys to be obtained? When Brown and his family decide on a world tour Brown visits his «?ank, and, with a portion of the credit he has accumulated with years of. "*dus y and abstinence, he purchases letters ot credit, and these letters of credit purchased in New Zealand, with the cooperation of the banking systems of the ■world, will enable Brown and his family, wherever they travel, to obtain from the nearest bank the particular currency they require for the satisfaction of their needs. . The Browns may thus spend the coins and notes of a dozen currencies . none of which they possessed on setting out on their travels, and this .without at any time carrying anything more than a few pieces of paper that can be ar " tied almost without trouble or risk. Saving and Lending Invention and saving are the parents of all material progress —all the solid substance of civilisation. Only when man or woman has conceived a more helpful contrivance, and the superior tool has been fashioned into working shapj and placed at the disposal ot toiling mankind, can a forward step be taken along the path of human progress. And the fashioning of the new and additional tool is the whole substance of saving. Only by abstinence or gaying, and so producing something additional to our consumption, can we add to our equipment and so not merely our privnte hoards, public securities, and bank deposits, but our buildings, tools ana machinery; our roads, railways and ships—all* the vast equipment that makes up our material civilisationis the result ot the saving habits of mankind made fruitful by invention and industry. But in a highly complex society it aoldoin happens that the individual capable of producing an income beyond bis needs can profitably devote the spare time he thus has at command to the fashioning of additional equipment, and it ig here that the lender and the hank can profitably function. Each individual devotes the whole of his working time tp his own particular (jailing, and the portion of his income he chooses to *av« is deposited in his bank, and the bank makes the purchasing power thus Entrusted to it available for the needs civilisation. Thus on the one side we have lawyers, doctors, civil servants and a countless host of othersi whose- incomes e *Ceed their own requirements, but are themselves unable to employ their spare resources in industry, and ®n the other side we have the inventor, Manufacturers and producers—all the army* of adventurers in industry require capital for their undertakings—and between these two comclasses we have our banks Wnering in the savings of the comdealing them out for fruitful