THE RESERVE BANK ACT

New Zealand Herald, Volume LXXIII, Issue 22392, 13 April 1936, Page 8

THE RESERVE BANK ACT

The eyes of the financial world are upon New Zealand. The Economist and the Financial News of London have both, in the ordinary course of their service, made comments upon the first financial legislation of the Government, that which nationalises the Reserve Bank. Neither is alarmed, hut neither is quite confident about the withdrawal of normal safeguards against inflation. In the opinion of the Economist the absence of an independent check upon Government expenditure makes it more necessary for the Administration to follow a wise, consistent policy. This may be interpreted as a warning. The Financial News believes that "printing press inflation" is inevitable, that under present plans there will be no immediate alarm, but that there is danger of a policy of expansion getting out of hand. It admits the Prime Minister's "good intentions," but mentions the availability of "dangerous devices." London financiers, of whom New Zealand is not independent—indeed without any more London borrowing the London money market is sufficiently involved in the Dominion to make any Government walk warily—have had a great deal of painful experience of inflation in various countries. They know that it is one thing to open the flood-gates of finance and quite another to close them. On the whole it appears from the cable message that the scope and purposes of the Reserve Bank Act are well understood in London. There is also apparent a grasp of the point so often emphasised in New Zealand that Labour's policy of reducing the exchange rate on London is in violent conflict with its plans for local inflation. But in spite of this intelligent noting of some alarmist and contradictory features of Government action in New Zealand, it is gratifying that there is no sign of any forfeiture of the high regard in which this Dominion has always been held in London financial circles. The importance to New Zealand of retaining that confidence should be a check upon any rash exercise of the wide powers conferred on the Government by the Reserve Bank Act.