USING OUR DEPOSITS

New Zealand Herald, Volume LXXVII, Issue 23781, 8 October 1940, Page 10

USING OUR DEPOSITS

Si r; —it is still being suggested that we might profitably draw on our bank deposits—deposits that are thought to be wealth, or purchasing pmver, that ia lying idle in the banks. "What, then, is the nature of these deposits, how do they originate, and in what ways can they be used? They are, almost in entirety, created in three ways. (1) Cash is paid into the hanks for safe keeping, or as an investment. Cash so deposited is lent to the public or used as till money. (2) Money held outside the Dominion by our exporters, or by those coming here as tourists or as settlers, is exchanged for its equivalent in New Zealand bank deposits. The deposits thus created, or their equivalent in other deposits, are used up in purchasing the money that is required abroad by our importers, tourists and emigrants. (.'5) Parties who have arranged for overdrafts draw cheques that bring advances into existence. The parties receiving these cheques pay them into their hanks, and so deposits are built up that are roughly equal to the additions thus made to advances. Cheques can be drawn on the deposits that are brought into being by this third method, and they are, of course* being drawn on them every day. .Hut if one of these cheques is paid into an account that is in credit, it will withdraw nothing from the hanking system. It will merely transfer the amount to another client. Whenever they are paid into accounts are are overdrawn, both the deposits and the advances will be reduced by the amount's represented by the cheques. Those drawing the cheques reduce their deposits; those paying them in reduce their advances. ■Thus the method of calling in our deposits, taking them as a whole, that is, almost the only one open to us, involves repaying our advances by the same amount, and any substantial reduction of our bank advances would involve individuals, business nnd industry in disastrous sacrifices. This method of financing our work would, in fact, mean that almost the whole amount obtained by it would be extracted from our bank borrowers —the parties that are probably in the worst position to supply it. J. Johnstone. . Manure-*®.