CENTRAL BANK PROJECT.

Taranaki Daily News, 18 June 1932, Page 4

CENTRAL BANK PROJECT.

In his address to shareholders of the Bank of New Zealand yesterday the chairman, gave a reasoned and interesting statement on the proposal for the establishment of a central reserve bank in the Dominion. It is perhaps only natural that a bank in the position of the Bank of New Zealand, enjoying privileges and rights from its association with the State, should look askance at such a proposal. But interested and biassed as they may be in this connection, its views are entitled to the fullest consideration and weight. The bank is the Dominion’s leading financial institution, its interests are indissolubly connected with the country’s, and it has made an unqualified success of its own operations. The chairman admits the authority of world experts like Sir Otto Niemeyer and Professor Gregory on the subject of a central bank for New Zealand. Both of these eminent men had no hesitation in advising the Government to make the departure, and so bring the Dominion into line with other parts of the Empire. They stated thenreasons in clear and definite terms, and adverse criticism of the proposal offered by the trading banks at the time did not in any way weaken, but • rather strengthened, their recommendations. But the Bank of New Zealand now stresses a new aspect. It says that whatever may be the merits of the recommendation's, “there can be no question that this is not the time to make a change in the banking currency and exchange system of this country. Time enough to consider a change if it be necessary—which the bank does not admit —when the present 1 depression has passed away and conditions have again become normal, otherwise there would’ inevitably be a serious dislocation.” The Government has already shelved the subject, and perhaps the possibility of its coming up for further consideration next session may be the reason for the definite condemnation now offered by the Bank of New Zealand. However, such criticism should not deter the Government from making a close examination of the project. It has to consider not only the views of the trading banks, but the interests of the country, which, of course, must be paramount. It will be conceded by all who have made a study of our banking system that the trading banks in the past have served the country well and faithfully, but it will also be realised that improvements can be effected to the benefit of the Dominion. For instance, the banks are compelled by law to hold gold reserves in the Dominion, and as a result there is lying dormant and unproductive about seven millions in gold. The metal fills no useful purpose here, but it would have a very definite value in Loudon, where all our external payments are cleared in the final analysis. Some £350,000 annually -would thus be earned in interest, sufficient to lower the rate of interest to the Dominion borrowers from the banks by about one-half per cent. So long as the banks in the Dominion have credit in London they can always secure gold from the Bank of England. Many people attach a good deal of importance to the possession of a stock of gold in the Dominion, but it can be, and actually is to-day, an expensive luxury. We are not on the gold standard, and actually have never been; we are on sterling, our London balances being the determining factor in regulating the volume of credit in New Zealand. Restrictions on the note issue of the banks were relaxed during and subsequent to the war, but in practice they had no effect and in no way contributed to the credit expansion which occurred just after the conclusion of the war. Another necessary banking reform is the institution of a single and uniform note issue. At present there are six noteissuing banks in New Zealand. It is conceivable that other banks may be established here in the future and be given the same right of note issue. It would be far more satisfactory to have a single note issue, as in Great Britain. This could best be done, as pointed out by Sir Otto Niemeyer, through a central bank. Mr. Nicholson says this would involve the Dominion in the loss of the tax on the note issue, but there would be compensating benefits to the country. However opinions may differ on this important question, there will be general agreement with the hope expressed by Mr. Nicholson that “the Government will not decide to proceed with the project until it is satisfied that it will function upon lines which are likely to prove beneficial to and in the best interests of the Dominion.”