CENTRAL RESERVE BANK

Otago Daily Times, Issue 21988, 24 June 1933, Page 2

CENTRAL RESERVE BANK

THE PROPOSAL CONDEMNED ADEQUACY OF PRESENT SYSTEM The considered opinion of the directors of the Bank of New Zealand is adverse to the creation of a central reserve bank in the Dominion. As spokesman for the executive of the bank, the chairman of directors (Mr R. W. Gibbs) ,at the annual meeting in Wellington yesterday advanced a number of reasons why the establishment of such an institution was not only considered unnecessary, but was regarded by himself and his colleagues; as an unjustifiable financial experiment, , “As was anticipated,” said the chairman, “ a Bill was introduced into Parliament for the establishment of a central reserve bank in New Zealand. It passed its first reading, but was not further proceeded with, which in the present state of the Dominion’s finances was a wise course to follow. As, however, the Bill may again be heard of, a short reference to it may not be amiss. “In the first place, has the desirability, the necessity, or even the advantages of the establishment of such an institution for New Zealand ever been demonstrated? Has not the action proposed been at the dictation of London financiers who have little or no knowledge of the Dominion’s special needs? Is it reasonable to -require the trading banks to hand over to another proprietary bank 7 per cent, of their demand deposits and 3 per cent, of their fixed deposits, to be at the disposal of a board of directors, the majority of whom would have no banking training nor be likely to possess any special financial experience? It is true the governor and deputygovernor who would constitute .the executive of the bank would be appointed by the Governor-in-Council and possibly in consultation with the' Bank of England, but would this ensure the selection of men thoroughly conversant with New Zealand’s financial requirements? “It must be assumed that the Government has fully considered the question of the loss of note tax revenue—no inconsiderable item in the face of a difficult Budget—also the restricted accommodation the reserve institution would be able, under the Bill, to afford it, as compared with the liberal assistance it has hitherto received from the commercial banks in times of stress. Further, can the restriction of credit which would be imposed on the trading banks, have been taken into serious consideration at a time when the country,requires all possible assistance obtainable? “In our opinion, this is no time for financial experiments which elsewhere, notably in South Africa and America, have signally failed ,in their objective. Both in Canada and New Zealand the present banking system gives infinitely more elasticity both as regards currency and credit than is obtainable through most of the present-day central banks. As the British Chancellor of the Exchequer said at Ottawa, ‘ This is no time for rash experiments in monetary matters.’ ”