THE BANKS’ GOLD

Otago Daily Times, Issue 22719, 4 November 1935, Page 7

THE BANKS’ GOLD

TRANSFER TO RESERVE BANK GOVERNMENT’S ACTION DEFENDED CPek United Press Association) HELENSVILLE, November 2. The action of the Government in taking gold from the trading banks at par was defended by the Minister of Finance in the course of several speeches in the Kaipara electorate to-day. The main point made by Mr Coates was that in the linal analysis the issue of currency, whether in the form of notes or coin, was the prerogative of the State. The note-issuing authority, he said, was usually a reserve bank, operating under conditions defined by statute. Prior to the war the note-issuing banks in New Zealand were required to redeem notes on demand in gold, but under the special war legislation notes were declared inconvertible and remained so right up to the time that the right of note issue was transferred to the Reserve Bank. That was an emergency measure and the banks were required to hold an adequate gold cover in case the Government decided to revert to the prewar position. The export of gold was prohibited except under licence, but if the notes had been declared legal tender, implying convertibility, any note-holder or depositor could have demanded gold, and with the licence requirements lifted could have exported it at a profit. The profit would not have accrued to the banks. It might be argued, continued Mr Coates, that note-holders who had received notes in return for previous deposits of gold would have been entitled to receive gold for their notes, with the accompanying profit. After the lapse of so many years, however, it would have been impossible to trace those people. The rise in the price of gold was due to the depreciation of sterling and New Zealand currency in terms of sterling and not tc any action by the banks. When the New Zealand currency was depreciated the banks expected to be indemnified against loss. They would not reasonably expect to receive any windfall profits on gold. It was a recognised principle, Mr Coates added, that when a currency was devalued the profits on devaluation accrued to the State and not to any of the banks holding gold. In March of this year gold was taken over by the Canadian Government at 20.67 dollars an ounce when market price was 35.48 dollars. Profits amounting to £4,000,000 were transferred to the Reserve Bank of Canada to strengthen its reserves.