THE CURRENCY QUESTION.

Otago Daily Times, Issue 19802, 29 May 1926, Page 4

THE CURRENCY QUESTION.

A SCHEME ECU STABILISAJK 'A. By Constant Rbadsb. The currency question is almost too intricate for the average man to comprehend; - it needs the 'brain of the expert financier to grasp it in all its detail. Yet it is a question which affects directly or indirectly everyone; in addition to which every country has its' special currency problem, and pursues its own peculiar system of banking. It is this latter consideration which renders so valuable Mr Herbert Edward Tenrc’s hand-book on “The History. Theory, and Practice of Australian Banking Currency and Exchange” (Sydney: Edwards, Dunlop; la 6d), and which has application also to banking in New Zealand. Starting with an account of the historical development of banking in England up to the eighteenth century, Mr Teare describes the earliest Australian currency—the opening of the doors of the Bank of New South Wales—the-first bank in Australia—ui Sydney in April, 1817. A lucid account is given of the development of Australian banking, with special reference to the financial crisis of 1893, when, following the collapse of the land boom, 14 banks were compelled to close their doors and suspend payment. The working of the various commercial banks in Australia arc dealt with in detail. and space is found for reference to the savings banks creclit-foncier banks, agricultural banks, co-operative credit societies, and other financial institutions. Special interest attaches to the chapter on “The Commonwealth Bank,” and Mr Teare declares that “ the part the Commonwealth Bank has played during the short time it has been in existence has been of very material importance indeed to Australia, though it must be admitted that the Great War, coupled with the fact of the hank being the Bunk of the Commonwealth Government, helped its progress very considerably.” The portions of the book dealing with such points as balance sheets, deposits, loans, discounts and advances, bank notes and currency notes, are necessarily largely technical, and of use in the main to those engaged in the business of banking. The same remark applies to the discussion on interest rates and exchange rates between Australia and Great Britain. Mr Teare devotes a special, chapter to banking in New Zealand, pointing out that much of the practice of Australian banks applies equally well to the Dominion institutions. A brief sketch of the beginnings of banking in New Zealand is "given, leading up to the formation in 1861 of the Bank of New Zealand, and its subsequent ups and downs. The Dominion’s position as a “closed banking field” is thus referred to: Since the 1893 crisis there has been a very close and select monopoly of banking in New Zealand, and in 1908 the whole of die hanking business ol Xcw Zealand was placed in the hands of live banks only, any additional banks being barred bv'law from entering the field. . . ■ Prior to the crisis there had been several other banks in the Dominion, notably the Bank of Auckland, which was wound up in 18GG, the On- - ontal Bank, which wont down in the 1893 crisis; the Now Zealand Banking Corporation, which was established in 1863 but which disappeared some years later;,and the Bank of Otago, also established in 1863, but which was taken over by the National Bank of New Zealand in 1873. \ fourth Australian bank, however, has been able to gain admittance to Xcw Zealand--viz., the Commercial Bank of Australia, so that there are six banks trading in the Dominion. Dr Ernest Dick, who hails from Basle, in Switzerland, dubs his book Ihc Interest Standard of Currency: An Attempt” ( George Allen and Unwin 10s Od net) ami the attempt to set forth a new scheme to stabilise the currency, l ie argument cleverly stated is that all the traditionary elements of the existing monetary system, if loft to themselves, without State control or international agreements, will right themselves and produce the conditions of the necessary stabilisation which financiers everywhere so earnestly desire. These elements he states as follows; 1. Leave the price of gold to find its owii level, but do not debar gold from being freelv used as legal tender nor from moving freely from one country to ‘ ir *2 t Leave the rate of discount unchanged. Both England and Switzerland have preserved tiwsir rate cf discount

unchanged for over a year—from a sheer sense of inability to understand its workings; it is wise not to meddle with forces which one has not learned to master. 3. Keep the State at arms length from the springs of the currency; no co-operation between the State and the Bank of Issue. , The two chief divisions of the book are “The Unsolved Problem of Gold” an.l “The Unsolved Problem of Interest,” and Dr Dick declares: “This scheme of mine is so reactionary as to glorify the two things which all advanced spirits of our enlightened age are unanimous in reviling: gold and interest, the arch exploiters of humanity.” This scheme he describes as altogether subversive and one which runs counter to .11 the accepted notices of the accepted interpretex’s. This he explains by saying: Instead of allowing such a reasonable and obvious idea as that “dear money”— i.e., a high rate of interest, makes for a restriction of the output of money, it bases its practical provisions on the observation that a theory which, is made clearer is all the more eagerly produced, and that bhrrowing becomes the less attractive the more the lending rate is reduced —in exactly the same way as buying is rendered risky when prices decline. Such heresies as these are, I hope, sufficient to mark my attempt as unworthy the notice of the professors. My solution of the problem is of the saine nature —si parva licet —as the suggestion of those who first conceived the earth as re - olving round the sun instead of the sun round the earth. The professors and the publicists of that time knew better than Galileo, but history has decided who was right.