RESERVE BANK

Southland Times, Issue 22158, 28 October 1933, Page 6

RESERVE BANK

MANY BENEFITS MR FORBES DEFENDS BILL WAY TO CO-OPERATION CHEAPER FINANCE (From Our Parliamentary Reporter). Wellington, October 27. Declaring that the Reserve Bank would open the way to financial cooperations with other countries that would be of the greatest advantage to New Zealand, as well as providing greater control of internal financial and economic conditions, the Prime Minister, the Hon. G. W. Forbes, made a vigorous speech in support of the Reserve Bank of New Zealand Bill in the House of Representatives this afternoon.

Mr Forbes said there appeared to be a belief outside Parliament that members were not competent to deal with monetary questions, but as a matter of fact they were better informed on public questions than any other section of the community because they had the necessary information at their disposal and also had the advantage of hearing the subject debated in the House. Members had received telegrams telling them what might happen to them if they did not oppose this Bill, but if they allowed themselves to be influenced by those, they would be spineless creatures and it would be a poor lookout for New Zealand. Sir Otto Niemeyer, continued Mr Forbes, was recognized as one of the world’s foremost authorities on reserve banks and banking machine, and he had said very clearly and definitely that the institution of the Reserve Bank would be of very great benefit to the people of New Zealand. It had been the unanimous opinion of the Empire delegates to the Ottawa Conference that if each Dominion had a Reserve Bank it would be a great aid to co-operation. One of the chief purposes of Mr W. Downie Stewart’s visit to London when he was Minister of Finance, was to go into the question of a Reserve Bank and his visit had convinced him that such bank was necessary, with the result that he introduced the Reserve Bank Bill as soon as he returned. Financial Co-operation. “The principal object of the World Economic Conference which I attended was to bring about co-operation between the various countries of the world and financial co-operation was the foremost consideration,” said Mr Forbes. “A resolution was adopted strongly in favour of each country having a Reserve Bank., .The resolution showed that a country without a Reserve Bank could not co-operate with the others and receive the benefits of co-operation with other financial institutions throughout the world.”

Critics had said that this reserve bank would be under the dqmination of overseas financial interests, but the very thing the Government was aiming at was financial co-operation with other countries and if that co-operation could be secured, a great many of the difficulties brought about by differences in currency and financial policy would be overcome, said Mr Forbes. Mr W. E. Parry; The bank means international control of public credit. Mr Forbes declared that if the cooperation he had spoken of could be secured, it would eliminate to a great degree the dislocation and hardship caused in the past by alternating booms and slumps. If people really understood the present measure they would not be passing the resolutions they were passing. In light of information he had acquired at the World Economic Conference he would unhesitatingly declare that New Zealand would be handicapped without a Reserve Bank. No other Government had made such a close study of the advantage to be obtained from a Reserve Bank as the New Zealand Government. The Minister of Finance had obtained much information at the Ottawa Conference and he himself had done the same at the World Economic Conference, and no other Bill had been so carefully considered by the Government as the one now before the House. The Reserve Bank would be a bankers’ bank. It would enable the banking resources of the country to be pooled and give each bank greater credit facilities and greater stability. The banks would therefore •be able .to provide cheaper finance. Much of the economic improvement in Great Britain had been due to the policy of cheap credit and the British banking policy was respected by all other countries. Cheaper money and easier credit would benefit the people as a whole. If there had been a Central Bank the land boom of 1920 would never have reached the proportions that it did.

Mr R. A. Wright: How are you going to stop that sort of thing? Mr Forbes: The Central Bank would influence the banking policy of the country. Mr F. Langstone: Would not taxation stop land rising in value? Easier Credit. Mr Forbes said that the Central Bank would also provide easier credit in times of depression and thus ease the situation. With the Central Bank established on sound lines New Zealand would have the soundest financial policy it had ever had. Instead of five or six commercial banks in competition with one another, there would be a bank whose duty it was to carry out a national policy. The Central Bank would be able to gather information about financial conditions in other countries that would be of the greatest benefit and give warning of any. likely financial disturbance. It was unpossible to deny that New Zealand would be better off with that information. He knew, himself, from his own experience as Minister of Finance, what advantage the Central Bank would be to the Government. The Central Bank would have been able to warn New Zealand that the depression was on the way and the Government would then have been in a better position to deal with it. It was absurd to suggest that the bank would dictate the Government’s financial policy. It would work in the closest co-operation. with the Government and give Parliament a measure of control over currency and credit that it had never had before. It would enable the Government to carry out a policy entirely in the interests of the people- Shareholders in the Reserve Bank would be in quite a different position to the shareholders in other concerns. They would be m the position of a jury acting m the interests of the people. No Minister of Finance in troublous times such as

these would like to be without a Reserve Bank and all the benefits that it would confer. SUPPOBTFOR BILL Mr J. HARGEST’S VIEWS. MINOR ALTERATIONS SUGGESTED. (From Our Parliamentary Reporter.) Wellington, October 27. “I hope this bill will go through the House because I believe it will provide an institution of tremendous importance to the future of New Zealand,” Mr J. Hargest said in the course of the second reading debate on the Reserve Bank of New Zealand Bill in the House of Representatives this afternoon. Mr Hargest confined his early remarks to replying to various members who are opposed to the bill, but later he dealt with some of the proposals in the bill and suggested some minor alterations. “I would like to say that I am heartily in accord with practically every clause in this bill,” he said. “It is by far the most important legislation that this House is to consider this session and it is encumbent on every member to see that the Reserve Bank it proposes is built on a firm foundation”.

Referring to the point that had been raised regarding confidence or lack of confidence in banking, Mr Hargest said that the country had been passing through difficult times and those who had got into trouble were inclined to place the blame on those who had managed to keep their heads above water —the banks, but in spite of what had been said the public had absolute confidence in the banks in New Zealand. Deposits in banks had increased and the amount of money invested by people right throughout the country was a striking instance of the confidence which investors, both large and small, had in the banks. The Reserve Bank would give the people of New Zealand the right to control their own currency, Mr Hargest continued, and it was important for that reason, if for no other. It would also save the country a large sum of money annually. Benefit to Posterity.

“I believe,” said Mr Hargest, “that if we had had the Reserve Bank two years ago, our present position would have been very different from what it is. If we establish the Reserve Bank we will have established something that will benefit posterity.” Continuing, Mr Hargest said that the Opposition was asking for political control of the bank, but they had evidence of the result of political control in the country in the railways. Because of political control lines had been built where they could never pay, and now they were being pulled up again. There were arguments for and against giving trading banks the added value of gold reserves that were to be taken over, .he went on. The best argument in favour of paying £3 17/10J an ounce for gold was that it was the book value placed on gold by the banks. On the other hand the banks could claim that of all their assets gold was the only one that had increased in value during recent years. In addition they claimed that their gold reserves were in excess of what they were required to hold and hardship would be imposed on them if they had to pay over those additional reserves.

Mr Hargest said that he was not prepared to say what should be done about the taking over of gold, but he urged the Minister of Finance to give the matter very careful consideration so that it would be settled justly. The Bill proposed that any profit from gold that might be sold by the -Reserve Bank should go into the general fund, Mr Hargest said, but he was not in favour of that. The profits should go into the reserves of the bank. It was almost certain that the bank would suffer losses in the early stages of its activities, and the profits from the sale of gold would provide a fund to meet those losses. It was all very well to say that the bank would have the State’s guarantee, but the superannuation funds the Government had established had got into difficulties in spite of the fact that they were backed by the State. The banks that were to hand over their gold had the right to some tangible asset in return, he said, and urged the Minister of Finance to be careful that that asset should not depreciate in case of difficulties later on.

The Directorate. Referring to the proposed directorate of the bank, Mr Hargest said that he considered it was a sound one, but he considered that the Government should retain the right in perpetuity to appoint the Governor and DeputyGovernor of the bank. These two officers would have to be men of standing and repute in the financial world and nothing would be gained by allowing the shareholders to nominate them. If the Minister of Finance would agree to make their appointment, a Government one, he would remove a great deal of opposition to the Bill. In conclusion Mr Hargest referred to the shareholder’s capital of the bank and said that he agreed that it should be as widely spread as possible, but he was of the opinion that 5 per cent, was too high a rate of interest. The Government had been striving to bring down the rate of interest in New Zealand as a means towards a return to economic stability, and now the measure before the House was proposing paying 5 per cent, when the general rate of interest was 4 per cent. He was quite satisfied that their capital would be subscribed if only 4 per cent, were paid.

THE SECOND READING DEBATE NOT CONCLUDED. T.TTTT.F. INTEREST SHOWN. (From Our Parliamentary Reporter.) Wellington, October 27. The second reading debate of the Reserve Bank of New Zealand Bill was carried a further stage in the House of Representatives to-day, but in spite of the fact that the Prime Minister secured urgency for its completion, an adjournment of the debate was moved by the Chief Government Whip, Mr A. J. Murdoch, at 5.30 and was set down for resumption on Tuesday. The debate to-day followed similar lines to the earlier stages and little interest was taken in it, apart from the fact that the Prime Minister entered the lists during the afternoon. Mr H. M. Rushworth said it had been stated that in establishing a reserve bank New Zealand was taking a lead from other countries. When one looked at the effect of the Reserve Banks in other countries all that could be seen was a trail of ruin. In not one instance had they worked in the interests of the people, but they had worked in the interests of international financiers.

Mr Rushworth said it had been stated one Parliament could not bind its successors and in theory he agreed with that contention, but in practice it was being continually done. Contracts of various forms were being constantly entered into by Parliament with other countries and other Governments and with individuals of this Dominion. Those contracts had a sanctity and if Parliament could not enter into contracts that would be binding on its successors it would find its functions considerably circumscribed. From the Bill it was clear that authority was to be given to the proposed new bank to enable it to enter into contractual re-

lations with the Bank of International Settlements. He asked for a definite assurance that in no circumstances would the Reserve Bank be allowed, to have any contractual relations with any bank or organization outside the Dominion. There was a great deal of anxiety throughout the country oyer the Reserve Bank proposals. For instance, it would be possible for the people controlling the issue and retirement of money by periodic inflation or deflation, to cause prices to fluctuate and by buying and selling goods with an advantage of knowing beforehand how prices would rise or fall they could make any amount of money. Mr Rushworth insisted that the Bill was being put through without the consent of the people of the Dominion. The Government was determined to “steam roller” it through Parliament and knew it could get it through. He stated that in law contracts could be held to be null and void if it was disclosed that information had been withheld. This would be regarded as fraudulent misrepresentation. He contended that if and when a successive Parliament might attempt to amend the Reserve Bank legislation it was raised as a plea that contractual relations had been entered into and if material information concerning these contractual relations had been withheld from the House, the reply would then be that these contracts should be declared null and void because of fraudulent misrepresentation.

Mr Coates: That is just a suspicion. Mr Rushworth: Yes. But I think the suspicion is justified.

Mr W. E. Barnard said he could assure Mr Rushworth in the name of the Labour Party that the Bill was regarded by it as being alterable in every respect by ordinary constitutional methods. The Labour Party, as the Government of New Zealand, would not hesitate to amend the Bill in whatever way it deemed necessary for the purpose of giving effect to the policy of the party as indicated in the Opposition amendment now before the House. Mr Barnard said there was only one way to make it truly representative of the nation and the community and that was to make it a State bank.

Mr C. H. Clinkard said the appointment of the Governor and DeputyGovernor should be in the hands of the Government for all time.

Mr F. Langstone said there was no reason to hope the Reserve Bank would depart from the “present obsolete system of banking.” It would be controlled by men with the same ideas as those controlling the existing banks. He contended New Zealand required a completely new banking system, definitely linked to goods and services in New Zealand and not controlled by outside influences.