COMPLETE CONTROL OF RESERVE BANK

Southland Times, Issue 23942, 7 October 1939, Page 6

COMPLETE CONTROL OF RESERVE BANK

Government’s Powers Defined By Mr Nash

“WOULD HAVE BEEN INTRODUCED EVEN IF NO WAR” v

(From Our Parliamentary Reporter) WELLINGTON, October 6. An admission that the Reserve Bank Amendment Bill would have been introduced even if there had been no war, was made in the House of Representatives this afternoon by the Minister of Finance (the Hon. W. Nash) in reply to a direct question from the Opposition when the Minister was moving the second reading of the measure. Mr Nash said that the Reserve Bank Amendment Bill was entirely in accord with the policy of the Government that it should control the credit and currency of the Dominion. This policy had come more and more into prominence since 1914, he said, and many countries had established their central banks. The governments in this respect had gradually increased their powers until ultimately they had come to the logical conclusion that they must have full control, as was now to be the position in New Zealand. It was only in 1936 that the New Zealand Reserve Bank had started to do the work it was expected to do. After the State had bought out the private shareholders, the introduction of exchange control brought more responsibility to the bank, and when it became necessary to allocate sterling credits its functions were inevitably increased.

“Possession of sterling resources, declared Mr Nash, “confers on the controller more powers over the social and commercial life of this country than can be exercised by any other single body. There is nothing more potent in our social and economic life than the power centred in the banking system.” , , Before 1934, that power was centred in the Associated Banks. Under such circumstances, said Mr Nash, the Government was of the opinion that it was not sufficient that the policy of the bank and its controlling agency should be run on broad lines in regard to the Government policy. _ The Government’s feeling was that it had to take this responsibility for guiding and controlling the productive and economic life of the Dominion. Therefore, it must have control of the central feature in its fullness, not merely on broad lines. . , . If the Government had the responsibility it must have the power, and it also recognized the tremendous responsibility which that carried. Divided responsibility was not justified. Mr W. J. Polson (Nat., Stratford): You are suggesting that it is not a war measure, but a line of Government policy? The Minister: This Bill is partly war and partly ordinary policy. I think it right to say that the Bill would have been introduced had there been no war, but the circumstances make it imperative that the control and responsibility for currency and credit should be directly on the Government. About four-fifths of-sterling credit, continued the Minister, was automatically paid into the Reserve Bank, and under the new procedure practically all sterling credits would go there and could be sold to the trading banks. ADMINISTRATION OF BANK Concerning the administrative side of the Reserve Bank, there was not the slightest intention of interfering. The administration would be run in the future as in the past, but on the question of determining policy on occasions where there was a difference between what the board considered should be done and what the Government thought, then at that point someone had to have the last word. It was entirely contrary to the accepted position that anyone outside the Government should in these questions have the last word. . The Rt. Hon. J. G. Coates (Nat., Kaipara): Abolish'the board. The Minister replied in the negative, pointing out that the State Advances Corporation had been operating smoothly under this system, with hardly any interference by the Minister, who had the last word about something the Government asked should be done. The Reserve Bank could be conducted similarly, and the country could still have the advantage of the wisdom of its board.

Mr Coates: Not if the Government takes no notice of them. The Minister: The Bill still leaves the board in control of the bank, but the Bill says it shall take notice of the representations of the Government and if there is any conflict and agreement which cannot be reached then someone has the last say. Mr Polson: What self-respecting board would allow itself to be put in that position? The Minister: There are boards all over the Dominion running under that system. The State Advances Corporation runs like that. Mr Coates: Does it create currency and credit? Too ridiculous! It is childish. The Minister: Because there is a major responsibility the member for Kaipara suggests that we should give it to someone else. Mr Coates: Someone who understands.

The Minister: The Government is responsible for the social and commercial life of this country and must have the deciding voice in the standard of living. “GAMBLER’S THROW” Mr Coates: A gambler’s throw. That’s all it is. Mr Nash repeated his declaration, and Mr W. P. Endean (Nat., Remuera) interjected: “What nonsense. They don’t understand.” “The man who interjected,” continued Mr Nash, “has done more damage to the credit of this country overseas than any other member. He has deliberately told the people overseas that he would take his money out of New Zealand.” Mr Endean: He did not. Mr Speaker (the Hon. W. E. Barnard) intervened with the suggestion that the discussion was being sidetracked and that the Minister should be allowed to continue without interruption. Mr Nash pointed to the present necessity of controlling and directing all effort and co-ordinating production, shipping and distribution, adding that the central feature was the Reserve Bank. The Government had a responsibility to the people to give effective expression to the generally accepted principle that control and direction of monetary policy was essentially the prerogative of the State.

The Rt. Hon. G. W. Forbes (Nat., Hurunui): Does this provide for inflation ? The Minister replied that it provided for the proper control of the credit, of the Dominion. As for the suggestion that inflation was involved, his answer was that the Government in providing a higher standard of living for the Dominion within its resources would find ways and means of maintaining and possibly extending it. Whatever road was necessary for this purpose they should travel it. Mr W. A. Bodkin (Nat., Central Otago): The Minister admits that inflation will destroy th? standard of living ? , Mr Nash: If the inference is right, then we will not have inflation. Mr H. S. S. Kyle (Nat., Riccarton): How will your friend Mr Montagu Norman take it?

The Minister: I hope he will take it well. Even Mr Montagu Norman cannot run this country. (Government “Hear, hears.”) Mr Kyle: Are you taking over the Bank of New Zealand? The Minister: There is nothing in this Bill about that. POLICY EXPLAINED In explaining the main clause of the Bill, the Minister said that there was to be no doubt that the policy of the Government, as communicated to the Reserve Bank, must be given effect to, even if it were a policy of low interest rates. The Government would take complete responsibility for whatever instructions were conveyed to the bank. There would be discussions and an exchange of views about what the Government desired to do. If there were two opinions, the Government must take the responsibility. Mr Coates: Has the governor of the bank refused to do anything?

The Minister said he would not enter into a discussion on the management of the bank. The opinion of the Solici-tor-General was that the Government had not the power to determine interest rates. “I have profound respect for the governor of the bank, the deputy governor and the directors,” continued Mr Nash. “At times I have differed strongly from their actions and policy, but that does not alter my respect for their integrity.” If there were conflict of opinion between the governor and somebody else, the Government’s will would prevail, Mr Nash said. “The Government is sole owner of the bank,” he added. All powers previously outside the bank’s functions could under the Bill be exercised with the authority of the Governor-General in Council. Private shareholders had an interest in the bank and power was taken to suspend the reserve conditions after consultation with the board. “If the Government hesitated to take the necessary action provided in the Bill it would be failing in its responsibility as a government in a time of national crisis,” concluded Mr Nash. “The Government will use the powers it is taking with all the responsibility it feels it owes to the people of New Zealand. The resources of the nation are going to be organized to build up the standard of living of the people and those resources will be used to the limit to enable that to be done.” Mr Nash said he hoped that in later years the standard of living would be even higher than .it was today. REVALUING GOLD IN RESERVE PRESENT MARKET PRICE ' AS BASIS (From Our Parliamentary Reporter) WELLINGTON, October 6. Gold coins to the value of £2,860,000, the price they were purchased at by the former Government from the trading banks, are held by the Reserve Bank of New Zealand. In giving this information to the House of Representatives this afternoon, the Minister of Finance (the Hon. W. Nash) said the gold was bought at £3/17/10J and was in the reserve of the bank at that price. “We are taking power to revalue that gold,” said Mr Nash. “We will make it bear its weight in the reserve at the new price.” In reply to the Rt. Hon. J. G. Coates (Nat, Kaipara), the Minister said the coinage was taken over when the Reserve Bank was set up. Its value today was something like £B/8/- an oz sterling. It must not be valued above the market value.

Mr F. W. Doidge (Nat, Tauranga): In New Zealand currency? The Minister: It comes to the same position. If we valued the gold it would probably be in New Zealand currency. In any case, provision is made to set the surplus aside. Any increase in value between the old price and the new would be credited to a special reserve in the books of the bank and the amount placed under the control of the Minister of Finance for any purpose decided upon by the Government.

Mr A. E. Jull (Nat., Waipawa): It

would not belong to the bank as a bank? The Minister: Its face value belongs to the bank but the difference between its face value and what it is sold for belongs to the Government. Mr W. J. Broadfoot (Nat., Waitomo): Is it still there? The Minister: I have not seen it. Mr Broadfoot: Can we have a look at it? The Minister: As far as I know, it must be there. Mr Broadfoot: It is not a gold brick?