COMMENT IN LONDON

Poverty Bay Herald, Volume LX, Issue 18190, 11 September 1933, Page 5

COMMENT IN LONDON

PROPOSAL WELCOMED ■ RESERVE BANK’S VALUE MAINTAINING STABILITY (Special to the United Press Association) LONDON,, Sept. 9. Tlie chief London newspapers gave prominence this morning to a statement by the New Zealand Minister of Finance regarding the proposed reserve bank for-the Dominion. The statement comprises a precis of explanatory articles regarding the reserve bank published in New Zealand and the press comments. The Times’ City editor says: “The Finance Minister put forward cogent arguments for the establishment ,oi a reserve bank in New Zealand. The essentiaWlifference between' the functions of a central bank and those of a commercial bank is that the former exercises general control and supervision of credit and currency conditions, while the latter’s business is to collect deposits and make loans to its clients. Commercial banks work competitively and must, therefore, be regarded primarily as trading, and profit-making institutions. . “A central .bank acts as banker to the Government and commercial, banks, but its chief function , is to .act as the note issuing authority, to control credit in the nation’s .interest, and to(maintain stability of the currency, which is the foundation of all contractual relations. Because' of. the delicate problems arising from time to time, it is desirable that the administration of a central bank be independent of politics and that its policy and practices be national, not sectional.

'THE STERLING STANDARD “It must, therefore, be guided primarily by the financial welfare of the country as a whole. Its business is not to make profits over and above what is required of the remunerative capital employed in it and to prevent it being a burden on the taxpayer. The advantage of a reserve bank from a business point of view is that it centralises the surplus cash resources of the banking system and thus provides a mobile fund to be used in case of need.’’ The editorial concludes: “New Zealand’s monetary standard for many years has been {lie sterling standard, the ehiet factor in regulating the volume of credit in New Zealand having always been the amount of London balances. As the Minister rightly points out, the prosperity of the Dominion hinges to a great extent on events in Great Britain, and, therefore, New Zealand cannot be indifferent to her monetary policy. These facts cannot be disputed, and one of the chief advantages of a reservo bank is that it would enable New Zealand to act in even closer co-operation with this country.’’ Tho Daily Mail says editorially : “That the importance of proper central ‘ bank facilities for carrying out a considered monetary policy is fully recognised in New Zealand is apparent from the decision of the Government to proceed with a bill for the formation of a duly constituted reserve bank. To be effective, monetary control must be centralised, and, with its own central bank, the Dominion will be in a better position to co-operate in any international monetary action to raise prices, while it will also be able to assist in the flattening out of unnecessary trade fluctuations.’’ It concludes that New Zealand’s latest step will be watched with sympathetic interest in the City.