BILLS OF EXCHANGE

Otago Daily Times, Issue 22905, 12 June 1936, Page 10

BILLS OF EXCHANGE

USEFUL METHODS OF FINANCE AID TO CONTROL OF CREDIT (From Our Parliamentary Reporter) WELLINGTON, Juue 11. An exhaustive survey of the use of bills of exchange is made in the annual report of the board of directors of the Reserve Bank of New Zealand, which was presented to the House of Representatives to-day by the Minister of Finance, Mr W. Nash. The board says that the question required to be viewed from various angles, and observes that the history of bills of exchange has not been completely unchequered in some countries. Although the bill market was a useful adjunct to the financial structure of any country, it was not desirable to attempt to force the use of bills upon the trading community unless this means of financing transactions could lie proved to offer advantages over the alternative methods.

"A bill market implies, of course, the existence not only o.f bills, but also of a group of persons or corporations prepared to deal freely in them," states the report. " Whilst such a market in New Zealand may be regarded as a highly desirable objective, its complete establishment does not appear to be capable of immediate realisation. Nevertheless, the board is of the opinion that all practicable steps should be taken to promote such a development and that the proper use of bills should be encouraged as much as possible. "In reducing the rate of discount to a level considerably below that quoted by the trading banks for overdrafts, one object of the board was to create conditions in which producers, manufacturers, and merchants would have an opportunity of testing whether the balanco of ndvanlaftc for them lies in the use of bills discountable at a relatively low rate or in the more flexible overdraft at a higher rate. "In recent years," the report states, " the use of Treasury bills has been extended very considerably in many countries, and it is not unusual for such instruments to form a major part of the contents of tlte portfolios of dealers in bills in those countries. Treasury bills provide a useful and economical means of financing expenditure of a temporary nature, and the board is of the opinion that recourse to this means of borrowing, if kept within reasonable bounds, would not only be convenient and economical for the State, but would, in addition, assist in the development of a bill market, thereby facilitating the control of credit in the Dominion. "It is, however, considered," the report adds, " that the issue of Treasury bills should ordinarily be restricted to such an extent as is necessary to cover expenditure incurred during certain periods of the year in anticipation of revenue or other receipts to be received later, and to such further strictly limited amount only as can be kept outstanding without risk to the financial structure. Recourse to the issue of additional Treasury bills may become a practical necessity in certain circumstances, and it is, therefore, regarded as most desirable that latitude should ordinarily be allowed for an increased issue to meet an emergency}"