RESERVE BANK PLAN

Taranaki Daily News, 8 November 1932, Page 8

RESERVE BANK PLAN

THE TRANSFER OF GOLD.

BACKING FOR NOTE ISSUES.

Pending legislation for the establishment of a reserve bank in New Zealand has raised a question as to the disposal of the gold coin and bullion to the central- bank by the trading banks now operating in the Dominion. It is asked in certain quarters whether the gold held by the banks will be valued for credit purposes at the par value of gold, about £4 an ounce, or the present rate of over, £6.

In his proposals for the formation of a, reserve bank, Sir Otto Niemeyer, recommended that tho trading banks should be required to transfer to the reserve bank tho. gold they now hold in New Zealand, in exchange either for reserve bank notes, with which they can pay off ■ their own notes or for credit at the reservfe bank. This is also set out in Sir Otto’s draft of proposed legislation. At the time gold showed little variation from the par value. The present combined holdings of tho trading banks amount to about £5,500,000, of which bullion and com amounting to over £2,000,000 is held by the Bank of New Zealand and about £1,000,000 by the Bank of New South Wales. In the banks’ books this gold is valued at par, but it is believed that the banks would not be willing to part with their • holding at this valuation. The gold has been held by them since before the war, and it has virtually been lying idle, being of little benefit to them. They would no doubt claim they were entitled to the accrued benefit brought about by the premium on gold. • . A sterling exchange standard is pio~ posed in connection with the reserve bank, on which New Zealand has to all intents and purposes already been working. This would be brought about by the reserve bank transferring most of the gold to London and establishing credit there. In.the case of the Bank of New Zealand, its holding would actually be worth 50 per cent, more than the. amount needed to redeem its notes now in circulation, the note issues of the banks being secured almost to the full extent by bullion and coin. The banks should benefit considerably by the fortuitous extension' of their credit.