THE RESERVE BANK

Southland Times, Issue 25314, 18 June 1935, Page 9

THE RESERVE BANK

To the Editor. Sir, —While one cannot congratulate N.Z. on the first year’s operation of the Reserve Bank, its policy will be entirely satisfactory to Australian Banking interests. The principal function of a Reserve Bank is not acting as Bankers for the Government and Trading Banks,—this part of its activities is only the means to an end, that end being to enable the bank to have control of the Monetary system, and to use that control in the best interest of the country. Its primary service is to restore and maintain the value of the New Zealand Pound, the unit that values the goods and services of the people of New Zealand, as close to the value of the £ sterling as possible—the unit that measures the value of the goods coming into New Zealand, in payment for the goods sent out. Sir Otto Niemeyer, on whose advice the Reserve Bank of New Zealand was established, urged Parliament to demand this service of the Bank to the people by Statute, and not to leave it to Directors. He fixed the fluctuations of exchange at 1J per cent up or down. (See Clause 16 of original Act.) Had this not been possible, then we could not blame the Bank, but far from this being the case, the Annual Report shows that a surplus of Sterling Assets held by the Bank is some £17,500,000 and £12,500,000 we are informed is also held by the Trading Banks. This alone condemns the present Rate of Exchange as uneconomic. The total of some £30,000,000 Assets held in London, while it cost the people of New Zealand some £24 10/- pei cent, to put it there, has earned less than 1 per cent, during the year. The report also tells us that the British Treasury Bills during the year were discounted as low as 3/10 per cent.— hence the low earning power of our London funds. The irony of it is that a Chinese merchant in Shanghai can sell his silk to an Italian Hat Factory in Rome, and, using the Short. Term Loan Market, can use our Sterling Funds in London to facilitate trade between Italy _ and China, paying something in the vicinity of £1 per cent for the use of these New Zealand Funds, but, if a New Zealand merchant and a British manufacturer wished to use them to facilitate trade between the Motherland and New Zealand, then the rate is £24 10/per cent, of 24J times greater than the rate charged the foreigner. Why keep funds in a market so unfavourable, when the people of New Zealand are willing to pay 30/- per cent, for their use? The repayment of Treasury Bills owing by the Government to the Trading Banks by the Reserve Bank brings to a close a financial scandal, but this has not reduced our National Debt by £20,000,000 as was claimed by the Acting Minister of Finance in his financial statement. It has only transferred the Debt from the Trading Banks to the Reserve Bank, where it is still guaranteed by the Government.

We* have no knowledge, however, as to how much the Government has been relieved by the change. We do knpw, that while the Government was paying £5. per cent, for the, discounting of Treasury Bills by the Bank of New Zealand the Australian Government was only paying £2 per cent, to the Commonwealth Bank; the South African Reserve Bank charged its Government 30/- per cent, and the British Government was having the same work done by the Bank of England for 5/per cent, or one quarter per cent. We are assured that the Bank -of

England has no influence on the Reserve Bank of New Zealand. This, I think, is unfortunate, because if it did exercise some control we would be freed from the disastrous influence of Australia, and the experience and guidance of the Bank of England in our monetary system would be invaluable to New Zealand. We would like to know that the Reserve Bank was as free from Australian influence as it is from British, but from our knowledge of what happened in 1893-5, then again in 1931-2 when our present rate of exchange “on London” was forced on us by Australian financial interests, to prevent us taking advantage of our better credit position in the London Market, it appears the Reserve Bank has been unable or unwilling to give New Zealand her freedom from Australia. In this it served the New Zealand Government policy and in turn served Australian financial interests, but at enormous cost to taxpayers and ratepayers, who see their local bodies and their Government unable to balance their budgets, and they cannot complain if this dangerous precedent is taken advantage of by. some other Government. How long are we to wait for Australia to put her house in order before our Reserve Bank will restore our Pound to its full, buying power, and with it, the prosperity of the country? In failing to do this, the Reserve Bank has failed to function as a Reserve Bank; but has assumed the role of a State Bank, acting purely in the interest of a Government policy, and in taking this power which it has no right to, it sacrifices tliat which it can legally claim and, in the interests of the good government of our.monetary system, it should most- strenuously guard.—l am, etc. J. HISLOP. Auckland, June 10, 1935.