NOTE ISSUE.

Otago Daily Times, Issue 20877, 18 November 1929, Page 12

NOTE ISSUE.

EXPANSION IN AUSTRALIA. FEDERAL POLICY. SOUND GOLD BACKING. (From Oub Own Correspondent.) mi ~ SYDNEY, November 7. Ibe sudden decision of the Federal Government to expand the note issue, firmnH n r e cf n - S ° f re,i ® vin 5 the present financial stringency, ls understood to have the approval , of the banks, whose b^ S iiT ere a ?v rt^ ined at a inference held between the Treasurer and the re - r r* ei v atlTe3 the various banks, fiiaV been the consistent policy of the NotcTssue Department of the Commonwealth Government ever since it was vested with the control of the paper P r f e ™. the issue, what r£fm e ~ d -1° ** . the requisite elasi* Was recognised, e ther in the direction of undue limitation or undue inflation would be disastrous; but'by meeting the variations in trade !t was sou ght *0 retain m the currency a genuinely healthy conition, at the same time providing, for the community, sufficient of the tokens to penmt of the facile conduct of business in every department. Throughout recent years the tendency 1 tHr 1 - as been downwards. On the last Monday m June, 1921—which a - I,omt of time in a period of great business activity~the paper outstanding represented £58.228,070 At f 42 258 d 22fi- JU! i 0 i-o C St the was ±42,258,226, or £10,969,844 less. Yet in the interval, trade in Australia had undergone general and fairly extensive expansion. During recent months there th! , b r n ad I mi i tedly some shrinkage in the aggregate turnover; but there is a school of economists which considers it justifiable, to a certain extent,, to facilitate business by creating additional paper money. There is another that maintains that undue inflation is dangerous at any time, and it may be opposed to the policy of issuing additional tokens at this stage, preferring that economic laws be left to work out the cure along hues which are regarded as natural. °

If the proportion of gold backing to notes outstanding be taken as a basis for calculation, there is plenty of. iustification for the issue of additional paper money tokens Australia’s note issue, as a matter of fact, is one of the best in the world,-measured on the basis of gold hacking, according to expert opinion. The statutory obligation is for a gold the notes Instead of holding the minimum of 25 per cent., however, the reserve is kept at aimost double that proportion. At the end of September last, for instance, there was in the reserve gold valued at £23.441,497, which equalled 57 per cent of the notes that were outstanding. From that fact it will be readily recognised that the intention of the Commonwealth Bank to shin about £6 000,000 to the Bank of EngZd S not threaten in any material degree the soundness of the issue. Undoubtedly £ , will P£. ove helpful, not only to the Bank ,of England, but also to Australian finance in London, where there has been a temporary dearth of funds held for Australian account. ~ j total of notes outstanding at the end of September last the public 69 rf 2 - and the banks 16,861,01 4 it 1S 0 { significance, as indicating the trend in the demand for notes by the public, that in July last its quota was £24,472,561; at the close of August it had risen to £24,620,962 Last week’s return of the Commonwealth Bank indicated that there had been an increase m the note issue of £020,000, the latest amount represented by the tokens being £42,878,226. There will be general satisfaction in the knowledge that the increase in the note issue has the approval of the hanks, and has not been forced upon them by the new Labour Government, which is going to be responsible for so many innovations during the next few months. It is unlikely that the people would tolerate interference for political reasons with the currency of the Commonwealth.