THE GOVERNMENT AND THE BANK OF NEW ZEALAND.

Otago Witness, Issue 2106, 5 July 1894, Page 17

THE GOVERNMENT AND THE BANK OF NEW ZEALAND.

(Daily Times.) In the banking legislation which passed both Houses of the Legislature in the small hours of Saturday morning we have before us a grave and striking substitute tor the Colonial Treasurer's undertaking at Oamaru to provide plenty of money for everyone in the colony without increasing the burden of the annual payment of interest. The whole scheme may be considered first as it affects the colony and again as it affects the shareholders of the Bank of New Zealand. If the first question appears to be the larger, it is only because the prosperity of colonists is more directly affected by the new position taken up by the Government. The dealings of the bank are really so extensive throughout the colony that its progress or retrogression will seem to many people almost the same as the advance or decadence of New Zealand. We haye first, then, to face the fact that we have undertaken the work of a State bank in its entirety. It has been understood for some time past that the Ministry were about to propose a State bank, but it was thought by a good many people that this would only mean a bank of reserve and not a State bank as it is understood by many of those who believe a printing press the chief thing in making money plentiful. What we have got through the legislation which came upon New Zealand as such a tremendous surprise last week is a State bank in the fullest and most complete sense of the wor( j s — a bank which will compete with other institutions in commerce in all its branches, and which can, and we do not doubt will, be used by the Government of the day to a very large extent in connection with its finance. Obviously the first step has been taken . to bring the finance of New Zealand into line with that of Great Britain, and we shall expect to find that the legislation of last week will be supplemented before the end of the session by other measures dealing directly with the relations of the Bank of New Zealand to the State and to the other banks as well as the public. In London, we may remind our readers, the Bank of England is the deposit bank of all the other banks, who instead of hoarding gold themselves have merely to watch the reserves of the Bank of England, and limit or extend their advances in accordance with the position of that one institution. They know that in the last resource the Bank of England has the State behind it, and that in times of pressure they can rely upon getting from the Bank of England all the currency they require, so long as they have enough good and liquid securities. It was the want of some such institution as this that was responsible for many of the Australian bank failures last year. So soon as they had exhausted each their own stock of gold, they had to shut their doors. Had they been in Great Britain the Bank of England wonld have supplied them with money as long as they had good securities to offer, and if the Bank of England itself ran short, as has happened three times since 1844, the date of the Bank Act, then the Imperial Government would have stepped in and suspended the Bank Act and made Bank of England notes legal tender. The Parliament of New Zealand has now taken steps to create an institution on the same lines, since it is quite clear that for the future the Bank of New Zealand must, under all circumstances, be supported by the whole strength of the colony. There can, under no circumstances be any going back, and the Treasurer seems to have recognised this by providing in the most careful way that Government should have the fullest and most ample control over the management of the bank. * The remov.al of headquarters to Wellington, the reservation of the right of appointment of president and auditor, and the further right to interfere if the Treasurer is dissatisfied with the business management, are all signs of a determination to prevent any call on th<? public purse in the future by preventing anything like improper finance. The very care taken to prevent anything improper or unsafe is the surest sign that it is intended to make good any deficiency in the future out of the consolidated fund, should such deficiency occur. It is desirable then to look the Avhole of the future responsibilities of the colony in the face, because the very first thing that meets us in the new legislation is the fact that as regards one million of the money to be_ raised under the guaranteed two millions we are told that it is "to be invested as the Treasurer may direct." The use of the word investment is peculiar. In

its strict sense it could not mean Treasury bills, still less public works, and yet we have a shrewd suspicion that in some shape or other this million of money is intended to be used to carry on public works for the colony. We shall now be prepared to see legislation providing that the present provision that every bank must have onethird of its note issue represented in gold be waived in so far as the Bank of [New Zealand is concerned, and this, together with the provision that notes are legal tender and a first charge on assets, will be found to take us all the way into the region of an inconvertible note issue by the State. Turning now to the way in which the new legislation will affect the shareholders and the trading public, we find that if the directors make the call of £500,000 and also float the whole two millions on the English market, then the total amount of additional strength to the bank for its own purposes will be one million and a-half , _pZu-s the million in the hands of the Colonial Treasurer. The public is left in the dark on this and other points in connection with the scheme. Perhaps the Treasurer has not himself as yet decided on his course of action. So many of the bank's shares have during the past few years drifted to London that it may be hoped that the call to be made will not affect JSTew Zealanders very severely, tho\igh it will undoubtedly be productive of great hardship in some instances. The trading and industrial world whose accounts are kept with the Bank of New Zealand will no doubt be sensible of a distinct relief in their finance, since whatever be the course adopted in connection with the new capital a very largo sum will go into the hands of the bank, and will no doubt be partly available for trading purposes. Wo fear that the Bank of New Zealand shareholders will at first find their property again depreciated, since the imminence of a call has always an injurious effect on share values — of ten,' indeed, quite out of proportion to the actual money liability. We have already expressed ourselves satisfied that the Treasurer would not have pushed through his Bill with so much urgency if he had not felt that it was of absolutely vital importance to the colony. The diminution of deposits in London was the first cause of the Australian troubles, and New Zealand Ministers are to be congratulated that, rendered wise by the experiences of the continent, they have provided a remedy before the threatened evil assumed unmanageable proportions.