THOSE MILLIONS

New Zealand Herald, Volume LXXV, Issue 23060, 10 June 1938, Page 15

THOSE MILLIONS

r Sir, —Replying to Mr. J. .Johnstone's letter of May 31, the Government was in debt to the trading banks some £22,000,000 for the surplus exchange it had taken over. That debt no longer exists. It was not forgiven, it was paid. What "spoils" the Government obtained went in satisfaction of the debt. The provisions of the Reserve Bank Act enabled the Bank to create legal money which paid the debt. I do not know of any way by which a debt can be paid, or extinguished, when the creditor will only accept money, except payment of money. Had the Reserve Bank Act provisions (and the Bank) never existed, the debt might still be outstanding, to be satisfied if the sterling were not meantime sold to importers, only by levying taxes to get money to redeem the treasury bills. But as the sterling was surplus, it was unlikely to be sold. Since Mr. Johnstone states "what belongs to the Eeserve Bank belongs to the State," Sir. Nash could presumably direct the Bank to cancel, say, £1,000,000 of New Zealand Government debt domiciled in London, by redeeming scrip on maturity dates; or, alternatively, to pay for'munitions, hydro-electric plant or rail-cars for the State, the transactions being indicated by a reduction in the Reserve Bank Statement, item —Assets, 7 (b) Sterling Ex. of £1,250,000, but without puttuig the Government internally in debt, and without reducing any other Government funds, or affecting any other item in the weekly statement, except the Reserve ratio. Does Mr. Johnstone accept this interpretation of his statement? J. B. Ballantyne.