The Daily News TUESDAY, DECEMBER 13, 1932. RESERVE BANK BILL.

Taranaki Daily News, 13 December 1932, Page 6

The Daily News

TUESDAY, DECEMBER 13, 1932. RESERVE BANK BILL.

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The decision of the Government to allow legislators ample, time for consideration of the Reserve Bank Bill was very wise. Banking is so highly technical a subject, and the importance of a sound system so material to the welfare of the Dominion, that the utmost knowledge is essential before any legislative effort for its alteration or improvement is inside. Hitherto such effoits have been inspired by acute crises, such as the unsoundness of a bank or the conditions arising through an outbreak of hostilities. Fortunately no such untoward circumstances have led to the introduction of the Reserve Bank Bill. It raises, in principle, no political party questions, and can be approached with a single-minded desire to do what is best for the economic wellbeing of the Dominion. Speaking generally, the Bill may be traced to the recommendations of Sir Otto Niemeyer, whose authority as a financial expert no one is likely to question. His advice as such was sought by the Government, and in the main the Bill that has been proposed follows the suggestions he made. Sir Otto’s investigations revealed that the banking system of the Dominion depended, so far as its legislative control was concerned, upon regulative provisions designed to govern its operations upon orthodox lines on a full gold standard. It is true the regulations had been considerably amended during the war and early post-war years, and that what was really a sterling exchange system had been evolved. He found that the New Zealand banking system is not self-contained, that the most important work of the banks is in financing external trade, chiefly with Great Britain, and because trading and borrowing were chiefly carried out in London the Dominion’s banking business is really centred there. The chief duty of the banks has been to maintain a steady rate of exchange unaffected by any but exceptional trade disturbances, a rate which has been controlled by the condition of trade balances in London. The explanation of the rise in the exchange rate lay in the fact that the New Zealand banking system is not self contained. For practical purposes New Zealand and Australia had been regarded by London financial circles as one economic unit, and the difficulties experienced by Australia had affected considerably the position in regard to the Dominion. The heavy drain upon London balances, due to the fall in prices for New Zealand exports, had also a serious effect, and the rise in the exchange rate was the result. The expert’s recommendation was that New Zealand should make itself an entirely distinct economic unit, and a Reserve Bank was recommended for this purpose. Other factors in its favour were that it would create a local bill market and a local short loan market; it would make it possible to transfer a good deal of the gold ’now held by the trading banks and make it interest earning, while the fact of its transfer to London would improve the Dominion’s credit there, with possible favourable reactions upon prices for New Zealand commodities; it would make possible a single note issue the protection of which would be comparatively a simple matter. Since Sir Otto Niemeyer’s report was issued there have been consultations by the Minister of Finance (the Hon. Downie Stewart) with authorities in London and from other Dominions of which the proposals in the Reserve Bank Bill may be presumed to be the outcome. The Bill is not to be regarded as any reflection upon the banking system now in force. The Reserve Bank will not be a competitor for trading business; even’ its loan and bill functions are to be strictly limited, but it will definitely assert New Zealand’s position as a separate economic unit from Australia, enable closer co-operation with the Bank of England, make possible a single note issue and thereby enable gold now held as a safeguard by the trading banks to be released. It goes without saying that the benefits anticipated from the establishment of a reserve bank must depend upon the bank being based upon sound principles. The most important of these is that the bank must be free from any fear of political interference. If that cannot be secured, then the existence of such a bank will, to quote Sir Otto Niemeyer again, “do more harm than good.” So far, the Bill seems to have been framed with due regard to this safeguard. It must be assumed that the Government is convinced that the creation of a reserve bank is desirable for the economic benefit of the Dominion. In attempting to give practical effect to that opinion it is the duty of Parliament to see that only sound banking and economic principles are the foundations of the new institution.