NEW ZEALAND PROPOSAL TO ESTABLISH CENTRAL BANK

Stratford Evening Post, Volume II, Issue 354, 11 September 1933, Page 6

NEW ZEALAND PROPOSAL TO ESTABLISH CENTRAL BANK

PRECIS OF MR. COATES’ STATEMENTS PUBLISHED IN LONDON

Press Discusses Pros and Cons

Press Association. —Copyright. London. Sept. 9

The chief London newspapers gave prominence this morning to a statement by the New Zealand Minister of Finance, the Rt. Hon. J. G. Coates, regarding the proposed reserve bank for the Dominion. The statement comprises a precis of the explanatory articles regarding the reserve bank offered the New Zealand Press.

Commenting editorially the Times’ city editor says: "The Finance Minister puts forward cogent arguments for the establishment of a reserve in New Zealand. The essential difference between the functions of a central bank and those of a commercial bank is that the former exercises general control and supervision of credit and currency conditions while the latter’s business is to collect deposits and make loans to its customers. Commercial banks work competitively and must therefore be regarded primarily as trading and profit-making institution; a central bank acts as banker to the Government and the commercial banks, but its chief function is to act as the noteissuing authority and to control credit in the nation’s interest and to maintain the stability of the currency, which is the foundation of all contractual relations.

‘‘Because of delicate problems arising from time to time it is desirable that the administration of a central bank should be independent of politics, and that its policy and practices should be national, not sectional, and must therefore be guided primarily by the financial and economic welfare of the country as a whole. Its business is not to make profits over and above what is required to remunerate the capital employed in it and prevent it being a burden on the taxpayer. The advantage of reserve banking from the business point of view is that it centralises the surplus cash resources of the banking system and thus provides a mobile fund to be used in case of need. “New Zealand’s monetary standard for many years has been the sterling standard, the chief factor regulating the volume of credit in New Zealand having been the amount of London balances,” concludes the editorial. “As the Minister rightly points out, the prosperity of the Dominion hinges to a great extent on events in Great Britain; therefore New Zealand cannot be indifferent to her monetary policy. These facts cannot be disputed. One of the chief advantages of a reserve bank is that it would enable New Zealand to act in even closer cooperation with Britain.” The Daily Mail says editorially: “That the importance of proper central bank facilities for carrying out the considered monetary policy is fully recognised in New Zealand is apparent from the decision of the Government to proceed with the Bill for the formation of a duly constituted reserve bank. To be effective monetary, control must be centralised, and with its own central bank the Dominion will be in a better position to cooperate in any international monetary action to raise prices, while it will also be able to assist in the flattening out of unnecessary trade fluctuations. New Zealand’s latest step will be watched with sympathetic interest in London.”