THE OTAGO DAILY TIMES TUESDAY, AUGUST 4, 1931. THE NIEMEYER REPORT.

Otago Daily Times, Issue 21404, 4 August 1931, Page 6

THE OTAGO DAILY TIMES TUESDAY, AUGUST 4, 1931. THE NIEMEYER REPORT.

The report on banking and currency in New Zealand by Sir Otto Niemeyer, which was presented to Parliament last week, derives its interest and importance not only from the fact that it recommends, as was anticipated, the establishment of a Reserve Bank of a size suitable to the conditions of the Dominion, but also from its recommendations concerning the internal currency of the country. The change that has occurred in currency conditions in New Zealand since 1913 is the first thing that is noted by Sir Otto Niemeyer in his report. Before the war, gold coin was in circulation and bank notes were redeemable in gold. Now, however, the inconvertible notes of the banks constitute the solo legal-tender currency and, under existing regulations, they are legal tender until early next year. In fact, however, though the banks are not required at present to keep any gold coin as cover for the notes they issue, they hold in New Zealand gold to an extent that is roughly equivalent to the total notes issued. This leads Sir Otto Niemeyer to make the following observations :

The factor actually determining the volume of the currency issued in New Zealand is not the physical amount of gold held by. the banks, but the general credit position as represented by the balances held by those banks in sterling. It is no accident that the volume of credit in New Zealand is not governed by the limits of currency imposed by the bank note legislation; notes or other monetary circulation are merely the consequence, and not the cause, of a given volume of credit. On a given credit structure public convenience demands a certain amount of notes, and it is credit which governs currency, and not vice versa. This was probably true at all times, but it is increasingly true today when means of payment are even less confined to notes and coin than they were fifty or sixty years ago. Equally it is clear that the credit posi tion in New Zealand must to a great extent be governed by the balances held in that market with which the major commercial and financial transactions are conducted —that is to say. London We have quoted this passage in extenso because it furnishes the key to

the recommendation that follows, that legislation should be adopted making the New Zealand note internally inconvertible, as it is in fact now, and, as a consequential measure, removing the prohibition on the export of gold coin, as this would be.no longer necessary. An internal gold circulation, Sir Otto Niemeyer says, is not merely an unnecessary luxury from the point of view of New Zealand, but also would be contrary to modern views on currency and likely, pro tanto, to be a factor in bringing about a world goldshortage from which New Zealand, among other countries, would suffer. These are the main considerations that lead to the recommendation that New Zealand should “formally adopt the sterling l exchange standard, thereby bringing the regulations governing the currency system into accord with standing practice and providing a separate basis for New Zealand exchange dependent only on her own balance of payments and incidentally transforming into an earning asset the present holding of dormant gold.” The arguments upon which Sir Otto Niemeyer founds his recommendations for the establishment of a Reserve Bank are, in effect, that through the creation of such an institution machinery would be set up under which exchange could be more effectively controlled than at present and the development of credit conditions could be influenced. It is not intended by the Government to take any action this session to give effect to Sir Otto Niemeyer’s recommendations. There is in reality no reason why these should be adopted without delay, if indeed they should be adopted at all in their entirety. The report embodying them is one that should be referred to a select committee of the Lower House in the new Parliament with the view that evidence upon it should be taken from banking authorities and economic experts prior to the introduction of legislation relative to it.