£98,000 PROFIT

Poverty Bay Herald, Volume LXIII, Issue 19042, 16 June 1936, Page 11

£98,000 PROFIT

RESERVE BANK'S YEAR

£73,000 TO THE STATE

IiASY MONEY CONDITIONS

DIVIDEND Ob' 5 PER CENT

The, net profit, of the Reserve. Bank ot .Sew. Zeaiaucl for the year, entled ftlurcii 01,.]b00, amounted to Vs ad. Oi this sum, £yO,UJO.was puiU in advance to Hie consolidated tuud. These uetails are revealed in tlie. annual report oi tne board ot director's of the btuiK.

1 lie report slates that a dividend of 5 per cent, on the paid-up .capital of the bunk had been paid to registerediShareHolders as on March 31, it>36. The remaining sum of £.50,12. h 2d had since oecii credited to the consolidated fund, making a total 0f'.X73,U12 Vs M so paid over during trie year. The profit was again affected very consid.erauiy by tne low rate, at ..winch..British Treasury hills continued tov.be, sold in London, lite average rate obtained by the bank from that source being lis 2d. per cent per annum. Haying regard, however, to too statutory provisions governing the investments and reserve of the bank, the primary need of a central hank to maintain a very liquid position, and ihe almost- entire absence of any other more profitable: yet suitable means of employing funds,'the income of the bank could ,iiot bufe.be dependent in,a largo measure upon the yield obtainable from British .-■treasurybills. , . ..The report points out that the principal changes in the balance-sheet us compared with the figures at the close of the previous year, ore aa follow : An increase of £804,582 10s in bank notes, which more than offset a decrease of about £310.000 in the total amount of •the trading banks' notes outstanding, thus reflecting an increase in the turnover of trade which took place during the year. A decrease of £3,428,333 13s 9d in State demand liabilities which is accounted for partly by the sale to the Treasury of. London funds to provide for the repayment on 'October. 1, 1935, of £2,135,•UOt) (sterling) of the New Zealand 5 per -cent 1935-li*4s sterling loan and the cost of converting the balance of £Bjooo.ooo of that loan. An increase of £4,530,345.13s 6d in the demand liabilities of the hanks. Since the end of November the trading banks' balances have been maintained at a It vol exceeding by about £5,000,000 the total of the balances during the earlier pan of the year. This increase, the report states, was brought about by the sale by the banks of London funds to the lieserve Bank. The minimum balances required by statute in respect of the demand and time liabilities, us on March 30, 1936, amounted to £3,362,772. ■ The changes in the assets were as follow :—ln gold dealings 200,000 sovereigns were sold in London at the beginning of the year. In sterling exchange the sterling funds (calculated at the rate of £10(1 sterling equals £124 New Zealand) available for the purposes of the Reserve Bank's statutory reserve, increased (luring the year by approximately £2,418,000. the total at the end of the year being about £8.000,000 (New Zealand currency) higher than the lowest point touched during the yea.. Investments decreased on balance by, £268,653. The report sets out that the number of shareholding's decreased during the year from-6300't0 5699, and the average holding rose in consequence from £79 7s 3<l to £67 14s 8d (nominal value).

BASIC EXOHANCE BATES In pointing out that there were no changes in tne basic rates of exchange quoted by any of the countries in tne sterung group' during last year, the itport says that, it is of interest to .note a reported statement at the recent annual meeting ..of the Bank for lnter- . national Settlements to the pJlect that an area, covering.more.than 651 per cent of the.world's trade enjoyed for, a (nil .year-the-benefit,of practically.stable .exchange rates. rlUis.-note-d in the report that theßr- ■ serve.'liauk's original '-'discount rate was 4-per cent,..or 1 per cent below'the,best rate:then being charged by the tradibg hanks for . overdrafts. The ißeserve Bank's rate was reduced to 3i,pcr cent ■ui; July, 1935, and then to 2\ per cemin :.\tarclu 1936, audit was now as. low as ihat :of any other Central Bank in the Rlerling. group of countries with the exception of the Bank of England, whose .rate at.present was 2 per cent. ;Jn al general survey the report states i that ,in ispite of i the increase, in business activity, easy money, conditions preyailed .in the'-Dominin durinn.the. whole of (ho ..last..financial year. The State nccounls were-'always )n funds, and there was .therefore iio need for the. Treasury or any other publici department to borrow

from the Reserve Bank. The trading banks likewise maintained balances at above the levels required by statute, and they also were not obliged to-ask for accommodation. "In addition to flic balances of the Iraciing banks at. the. Reserve Bank," the report continues, "the trading banks held Reserve Bank notes and silver coin, these three holdings combined forming their cash reserves in New Zealand currency. Over and above Ihese cash holdings, (hey held substantial amounts of London funds in respect of I heir New Zealand business; and in accordance with statutory provisions such balances, to the extent to which they were held in liquid form, were available for immediate conversion into New Zealand currency at any time.

HOLDINGS. OF TRADING BANKS "Since the passing of the Banking Amendment Act, 1935, the totals of the trading, banks' holdings of New Zealand Government securities in the Dominion have been added to their monthly returns. As these securities, which amounted to oyer £5,000,000 at the end of March, could in case of need be pledged as collateral for advances from the;Reserve Bank, their existence has a hearing upon the financial situation. The figures of the trading banks indicate a state of liquidity of (he banking system of the Dominion throughout the year. That the total of the advances of the trading banks at the end of March was only very slightly iu excess of the corresponding Ogjivrc a year before may •therefore! be taken as indicating the absence of demand for additional-accom-.modation on tho-part of satisfactory borrowers. This position is further evidenced by the fact- that the overdraft rate has' never been lower during the present century. "In t]ie easy money conditions which prevailed, the'- board 'did »ot consider that any useful purpose would have been served by the expansion of central bank credit in the Dominion to any appreciablei. extent,- nor did there appear |o bo

any need for contraction. The Bescrvc Bank, therefore, aimed :it (be maintenance of a state of equilibrium, rather than the attainment of any other object by monetary means. In all its actions, the board has been guided by its conception of the two primary functions of the Reserve Bank as .a central bank. In the first place, «s banker to the State, it lias aimed at conducting the affairs of the bank iu such a manner as to enable it to give as much assistance "as is practicable to the Government of the day in putting its monetary and financial policy into operation. And secondly, as banker to the trading banTcs and custodian of the statutory cash reserves, it has, within the limit's of its powers, endeavoured to render to them all reasonable support in the conduct of their normal business and also (o safeguard their cash reserves entrusted to its care.

"In the exercise of these functions, and in tendering .any advice to the Government on monetary and financial matters, it is the constant, endeavour of the board to act ill a spirit of complete detachment from any sectional interests of anv kind whatever, and to regard all such questions entirely from the point of view of what is most .likely to promote the welfare of the Dominion as a whole."