THE RESERVE BANK

Poverty Bay Herald, Volume LXIII, Issue 19124, 19 September 1936, Page 6

THE RESERVE BANK

(To tho Editor of tho Herald.) Sir.—We were told in Mr. Seddon's time that tho Bank of New Zealand was practically a State Bank because we had Givernment nominees, on its directorate, but our interest, in this bank is comparatively less to-day than it was then. Mr. Massey "interfered in the even ebb and flow of money" by pinning New Zealand London credits to New Zealand purpose, 'this was erroneously thought by many to be a pinning of the exchange rate.' Mr. Coates.had.a lot to say about State, welfare and banking generally, but Sir Otto Niemeyer did all. (he thinking and established'" in New Zealand an agency in gold speculation, with the sole right of issue of a legal tender currency, with which the Reserve Bank buys the people's gold. This, to the Reserve Bank, is a. costless credit; the proof of which rests in the fact that in a few years with a, capital of £1.500,000 it is now in possession of £40.000,000 of reserve funds. In other words, the people's money or international purchasing power. Theoretically, these funds, belong to the people, but theory collapses when we. know that we must gain by some, meons or other, Reserve. Bank notes wit'h which to purchase them, and Sir Otto made no mistake in gold trading when he. agreed that all shareholding profits over 5 pet" cent went into the consolidated fund.

When the rate of exchange was artificial ly raised the 'Government ol (he day guaranteed the trading banks against any loss which it. was considered would accrue from an undoubted accumulation of London funds "pinned to New Zealand purpose." An accumulation did occur lo the extent, 1 think, of something like £22,000,000 sterling, simply because the people could not find 25 per cent out of nothing as public credit was. depleted, Government borrowing was denied, and commercial credit was, nonest. The Government of the day, I understand, redeemed its pledge to the trading hanks, with an issue of interest bearing Treasury notes, thereby becoming the owner of these London credits, with which the Finance Minister could have, by repeal.irig Mr. Massey's dictum, paid or used direct to liquidate some of our indebtedness; to London. This, however, was not done and the Reserve Bank is credited in our minds, wrong or otherwise, with having purchased these Treasury notes with its legal tender currency, presumably on behalf of the New Zealand Government. This is equivalent to the oftrepeated cry that we but take money out of one pocket and put it in. another, but posterity will discover the principles of high finance involved. As the need of bread makes us our own hardest taskmaster, the need to pay when both pockets are emptied, will, still be insistent.

The position now seems to be that the Reserve Bank holds, on the credit side, Treasury notes, on the debit side. New Zealand's credits and as these credits are convertible into gold they constitute an orthodox basis for the extension of currency, and that the Reserve Bank is now in a position to lend direct to any Government in office upon the security of the people's own gold. Previously we had to go to London, to the underwriters, who did outpost duty for the Bank of England, to borrow credit, not gold, hut based upon gold and of gold value, which the trailing bank doing the business expressed in currency. The central banking principle has now allotted to itself nil governmental gold earning perquisites. A Reserve: Bank is .not, as a, trading bank is, identifiable with productive industry. In the final analysis it does not trade for or with a Government, but through a Government. Mr. Savage's effort, in buying out the shareholders in New Zealand is futile. No shareholders or directors can alter the policy or purpose of a. gold bank which is to conserve and maintain gold—the Golden Calf! and no local shareholding can participate in the profit of international gold juggling. To claim that the Reserve Bank is now a, Slate Bank is absurd. Credits with which overseas debts could be paid are accumulating beyond all sense of proportion to the requirements of New Zealand's trade; yet the State dare not touch them. It is simply possible for the "Government, with the agent in charge of our affairs and overseeing our accounts, to work upon, an arranged open account, but that could not lie called and is indeed wide of the. meaning of currency management. One can find nothing in our supposed State l>anl;ing legislation to prevent such an account being closed if over-stepped and nothing to prevent our bankruptcy in the general damnation of future slumps.—Yours, etc., JAMES MORRISON.