BANKING AND CURRENCY IN NEW ZEALAND.

Otautau Standard and Wallace County Chronicle, Volume XXVII, Issue 1339, 6 October 1931, Page 3

BANKING AND CURRENCY IN NEW ZEALAND.

(By "The Banker.") The report on Banking and Currency m New Zealand by Sir Ot-o* Neimeyer is-an interesting document prepared by an authority on the subject, and embodies the main principles of central banking and views ou tie subject that are held by other high authorities. . • Sir Otto concludes his -report by making the following recommendations : — (1) That . permanent legislation should be passed making the . New Zealand note inconvertible m New Zealand, but convertible into sterling, at rates fixed within .certain limits; (2) That -ah independent Reserve Bank should' be set up, charged with responsibility for the stability of Nevw Zealand currency, .invested with the privilege of note issue,7 arid charged with holding the" ."Government*. account and . the banking reserves of. New Zealand ; '••'"/...».'-." (3) That the note issue should be unified and concentrated m the Reserve Bank, the note-issuing powers of existing banks being abrogated ; (4) That the trading 7 banks should

be required to transfer -to the Reserve Bank the gold they now hold m New Zealand m exchange either for Reserve Bank notes, with which they can pay off their own notes f or for credit at the Reserve Bank; (5) That the trading- banks should , be required to keep with the Reserve ' Bank minimum reserves of 7 per cent, of their demarid liabilities m New 1 Zealand and 3 per cent, of their time ' liabilities m New : Zealand ; . 1 (6) That "thereafter the existing pro- i hibitipn on the. export of .gold coin from' New Zealand should be with- i drawn. ■ ! < Suggested points for incorporation "'in ---the legislation necessary to estab- ] lish the Central Reserve. Bank are ap- '..". perided to the report. Apparently- the i original capital of 7 the proposed hank * is to be 7£5XJ0,000 m -fully-paid shares < °f £5 each, all .'of -.'.which, shall be *< offered by : the New Zealand Govern- ] ment for public subscription ■m New Zealand. ; If any of the capital is not i subscribed by the public within three i months of the date of issue, the New i Zealand Government shall take up *„i such capital, but shall, offer it for subscription by the public at par so soon i as, iv fhe opinion 'of the Board of i Directors of the-bank, market con -ii- 1 tions shall permit- * -./ '. J The sum of 7^1,000 3 000, if the bank ; is established, shall be paid v y the j Ti-easury to the . bank and shall be ; utilised m the, first instance to take up : shares m the original , capital of the 1

bank for ; which the .public 'shall not have subscribed, * the balance being paid into the General Reserve Fund of the bank. Subsequently the amount, /if any, utilised m the purchase of shares m the bank shall be. paid to the General Fund as and when. the . shares are sold..Sir Otto is emphatic that the bank shall be "entirely free fromi both the actual fact .and the fear of political interference," and that "it .should hold both the banking balances of the Government and the reserve balances of trading banks." After v abstracting the principal points 7 from Sir. Otto's report it is worth while to note that on Bth April, 1927, Sir Ernest -M. Harvey, 7EC.8.E., Comptroller of the Bank of England, delivered a lecture /before the Victorian Branch of the Economic Society of Australia and New Zealand arid laid down thirteen important principles of central banking. '„ (1), A Central Bank should possess .the exclusive right of note issue. '~' r (2) A Central Bank m its manage"ment and policy, should be free from Government control and the influence of politics. •; (3) A Central Bank should be entrusted with the entire banking busi^ -ness of its own Government. '; (4) A Central Bank should' be the

banker of - the trading banks and should act as a setting agent for clearing differences between such banks. - / ;■■"■• ; (5) A Central - Bank should hot ordinarily compete with the tradingbanks for general banking business/ Z- (6) A dentral Bank should ensure to the ; public the provision of adequate banking facilities on reasonable terms/ ...' ;'..*•. ' ;_/-.-. ■"•■;' (7) A "Central Bank should not: take moneys at interest on its own account. (8) A Central Bank jshbuld quote publicly the rate at which, it is prepared to discount approved bills, and should publish at regular and frequent intervals -. a clear statement of its position. ■ (9) The assets of a Central Bank should be,' of the most liquid character possible". The bank should nol lend money on mortgage of real es tate or grant /unsecured advances or overdrafts.---(10)-A Central Bank should no draw or accept bills payable other wise than on demand. (11) A Central Bank should not en gage iri a general exchange businesi on its own account for the purpose o earning profits.. (12) A Central Bank should not en gage m trade or have any interest >i any commercial, industrial or othe undertaking. - (13) A. Central Bank should have n branch outside its own country, by may have agencies abroad,--