FINANCE POWERS

New Zealand Herald, Volume LXXIII, Issue 22390, 9 April 1936, Page 13

FINANCE POWERS

RESERVE BANK BILL STATE CONTROL OF CURRENCY REASONS FOR ACTION GOVERNMENT'S CASE STATED [BY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, "Wednesday Urgency was taken in the Legislative Council to-day for the Reserve Bank Amendment Bill, which previously had been passed in the House of Representatives. A ruling was/ given by the Acting-Speaker, Hon. J. A. Hanan, that, as the bill was a money bill, it could not be amended by the Council. During an explanation of the bill the Leader of the Council, Hon. M. Fagan, gave additional reasons for full State control of the credit and currency of the Dominion. He emphasised that the bill should make no difference at all to firms who were carrying on business as importers or exporters, but it would make a difference to speculators and financial institutions, who Would use sterling funds for their own ends.

Mr. Fagan gave an assurance that the power t» be given under the bill would be used sensibly. Credit would be issued only for the creation of assets, such as railways, houses and the like, and on all occasions Parliament would be consulted. Moreover, one of the best brakes would bo the three-year Parliament. Control of Sterling Funds Referring to sterling funds, Mr. Fagan said it was the Government's desire that all funds resulting from the New Zealand business of any person, firm or corporation should be transmitted through the Reserve Bank. For example, an exporter of fat lambs would receive from his bank payment for the lambs in New Zealand currency and so would not suffer in any way. The farmer's bank would then sell the sterling to the Reserve Bank and would be paid in New Zealand currency. There would be no opportunity for New Zealand sterling funds, to be used by speculators and taken out of the control of New Zealand.

Mr. Fagan said the bill would give the New Zealand Government the right to suspend its monetary standard, just as the United Kingdom Government had been given power to suspend the gold standard. At the moment the British Government used the Exchange Equalisation Fund to control fluctuations in the exchange rate and to offset any adverse movements of short-term capital. To do that in New Zealand involved an entirely different procedure. There was no real money market,' and an equalisation fund would act, aa it were, in a vacuum.

Necessity for Powers Hence, the foreign exchange transactions must be controlled, not but directly, so that no transfers of money to or from New Zealand were outside the control of the Reserve Bank. After explaining the provisions of the United Kingdom Gold Standard (Amendment) Act, 1931, Mr. Fagan said that such provisions gave far more drastic powers to His Majesty's Government than those incorporated in the bill before the Council. New Zealand was again following British policy in providing for regulations to be made to carry out the objects of the bill. "These powers are necessary in any modern State, but they are particularly necessary when there is the possibility of a Government being undermined by financial influences who have only their own interests to 'serve," said Mr. Fagan. "These provisions merely ensure that the control of credit and currency is really in the hands of the State."