GOLD PURCHASE

Southland Times, Issue 22729, 4 November 1935, Page 8

GOLD PURCHASE

ACTION DEFENDED GOVERNMENT AND BANKS MINISTER’S POINT (United Press Assn.—Telegraph Copyright.) Helensville, November 2. The action of the Government in taking gold from the trading banks at par was defended by the Minister of Finance (the Rt. Hon. J. G. Coates) in the course of several speeches in the Kaipara electorate to-day. The main point made by Mr Coates was that in the final analysis the issue of currency, whether in the form oi notes or coin, was the prerogative of the State. The note issuing authority was usually a reserve bank, operating under the conditions defined by statute. Prior to the war the note issuing banks of New Zealand were required to redeem notes on demand in gold, but under special war legislation the notes were declared inconvertible and remained so right up to the time that the right of note issue was transferred to the Reserve Bank. The banks were required to hold adequate gold cover in case the Government decided to revert to the pre-war position. The export of gold was prohibited except under license, but if the notes had been declared legal tender implying convertibility and the note-holder or depositor could have demanded gold, and with the license requirements lifted, could have exported it at a profit, the profit would not have accrued to the It might be argued, continued Mr Coates, that the note-holders who had received notes in return for previous deposits of gold would have been entitled to receive gold for notes with the accompanying profit. However, after the lapse of so many years, it would have been impossible to trace those people. The rise in the price of gold was due to the depreciation of sterling and New Zealand currency in terms of sterling and not to any action by the banks. When the New Zealand currency was depreciated the banks expected to be indemnified against loss. They would not reasonably expect to receive any windfall in profits on gold. It was a recognized principle that when currency was devalued the profits on the devaluation accrued to the State and not to any banks holding gold. In March this year gold was taken over by the Canadian Government at 20.67 dollars per oz when the market price was 35.48 dollars. The profits amounting to £4,000,000 were transferred to the Reserve Bank of Canada to strengthen its reserves.