RESERVE BANK

Taranaki Daily News, 20 October 1933, Page 7

RESERVE BANK

BILL BEFORE PARLIAMENT THE ALTERATIONS EXPLAINED COMPOSITION OF THE BOARD SHARE HOLDING LIMITED POWERS TO ISSUE NOTES By’ Telegraph—Press Association. „ Wellington, Last Night. The Reserve Bank of New Zealand Bill was introduced by Governor-General’s message in the .House of Representatives to-night and urgency was accorded the first reading. Replying to Mr. P. Fraser the Rt. Hon. G. W. Forbes said the second reading would be taken on Tuesday. Mr. Fraser asked the Rt. Hon. J. G. Coates if he would explain to the House the main points of difference between the Bill as now introduced and the measure introduced last session. Mr. Coates said there had been no major changes in the working of the Reserve Bank, but there had been some alterations in its powers and in the constitution of the board of directors. One small alteration made changes in the rules of the bank subject to the approval of the Governor-General in Council. An important addition limited the shareholding to a maximum of 500 shares per person. Another clause Changed, the rate to be paid on Government securities (which might be in the reserve fund of the bank) to the current rate instead of 5 per cent. The Bill proposed to make it lawful, with the consent of the Gov-ernor-General in Council, to issue bank notes of a denomination of less than 10 shillings. Another clause changed the accommodation that might be granted to the Government from one-third to onehalf the estimated revenue for the year.

The clause relating to the issue of bank notes had been altered. Formerly it had been proposed that the bank should have the “sole right” to issue notes; it was now proposed to omit the word “sole.” Another change ensured that gold held by the banks on account of others should not be taken over by the Reserve Bank. It was proposed that the profits derived by the Reserve Bank from the sale of gold transferred to it by any trading bank should be credited to the public account. •In the previous Bill in the event of nonagreement between the governor of the Reserve Bank and a trading bank as to the apportionments of such profits it was to be referred to arbitration. This had now been omitted. EXCHANGE WITH STERLING. The Bill had previously provided that at some future time to be determined by the Governor-General in Council the Reserve Bank should effect an exchange with sterling at a rate not varying from the parity by more than 30s per £lOO. This had now been omitted as it might have seemed an express direction to the Reserve Bank to pursue an extremely deflationary policy to achieve parity with sterling. In an unstable world such a direction would be folly. In accordance with the • report of the gold delegation of the League of Nations and the recommendation of the World Economic Conference the minimum reserve of the Central Bank had been altered from 30 to 25 per cent. This would allow greater flexibility. Another alteration in the interests of flexibility allowed the Minister of Finance a suspending power over the obligation of the Reserve Bank to raise its discount rate when the reserve fell below the prescribed minimum.

Dealing with the constitution of the board of directors Mr. Coates said in the first Bill it was proposed the shareholders should elect five directors and the governor and deputy-governor, the State having no power of nomination whatsoever. In the present Bill the Secretary of the Treasury was given a place on the board of directors but had not voting power. In addition the State was to appoint three directors while the shareholders appointed four, two of whom were to represent farming interests and two to represent industrial or commercial interests.

The governor and deputy-governor were to be elected by the shareholders with the approval of the Governor-Gen-era! in Council. In making this change the Government felt there could be no valid argument against representatives of the people having strong .representation. on the directorate of an institution of major national importance. MORE ELASTICITY. Mr. Coates said another clause made the constitution of the executive committee more elastic. It was also proposed ' to alter the cumulative dividend from to 5 per cent. Other alterations included strengthening the inspectorial powers of the Reserve Bank, the provision that no trustee should be given control of more than 500 shares, and other changes mainly of a technical nature. Replying to interjections Mr. Coates said gold from other banks taken over by the Reserve Bank would be taken over at book value. Mr. R. A. Wright: What does the book value mean? Mr. Coates said there was a difference between the book value and the market value. The book value would be £3 17s lOd per ounce. Questioned as to the salaries of the directors Mr. Coates said the amounts were not specified in the Bill. Mr. F. Langstone (Lab., Waimarmo) asked what was the need for a central bank in New Zealand. He declared central banks had not been successes in other countries. ’ Mi Wright said he agreed with Mr. Langstone. He said the House had never been told who it was who wanted a central bank. In his opinion it was to be a smoke-screen to cover up exchange manoeuvres. v Mr. W. J. Broadfoot (Co., Waitomo) said in his opinion the mam point should be the predomiriance of Government representatives on the directorate. . Mr. H. T. Armstrong (Lao., Christchurch East) said the sole object of the Bill was to enable the bank to control the State. He declared'the Dominion finances were not going to be contro - led by" a bank set up within New Zealand but by international financiers from the other end of the world. Replying, Mr. Coates said members had Inquired who had asked for the Bill. T answer was that it had been asked for by the greatest organisation in the country—the Government. The Government believed it was impossible to meet satisfactorily the future requirements of the country unless the necessary machinery was set up. , Replving to the inquiry as to how me Bill would stabilise the monetary policy Mr. Coates said that was a matter for Parliament. Parliament must at all times control the country’s monetary policy. Mr. A. M. Samuel: Is the bank to be linked up with the Federal system of reserve banks? Mr. Coates: It will be one of the reserve banks in the British Empire but it will in no way be linked up. The Government would not agree to bind

itself to a monetary system that might be adopted in another country, he added. Replying to another interjection Mr. Coates said the bank would be a Nev/ Zealand institution, composed mainly of New Zealanders. The Bill was read a first time.