CENTRAL BANK

Timaru Herald, Volume CXXXVII, Issue 19509, 8 June 1933, Page 8

CENTRAL BANK

FUNCTIONS EXPLAINED. ADDRESS BY MR G. MANNING, M.A. There was a fair attendance of the public in the W.E.A. rooms last night, when an address was given by Mr G. Manning, M.A., of Christchurch, on

“The Functions of a Central Bank. The meeting was presided over by Mi R. Stewart, who introduced the lecturer.

Mr Manning said that with the growth of trade and industry within a country, and particularly betw-een nations, the need arose for an institution to safeguard the country's gold supply, its currency, and the control of its credit. In England, where the first great development of industry and international trade took place, the Bank of England gradually assumed the banking functions which were necessary for the maintenance of that industry and trade, and it thus became the central bank for England. The organisation of other central banks followed, more or less on the lines of the functions of the Bank of England, but were modified in certain respects according to the trading conditions and habits of the people. In analysing the functions of a central bank, it was necessary to follow the development adopted by the Bank of England, thus bringing theory in line with practice. The speaker said that the main functions of a central bank were: (1) The control of the note issue on lines laid down by the Government of the country. (2) To mobilise the gold reserves of the country. The fact that all other banks kept their reserves with the central bank assisted this function. (3) To act as the Government’s banker. (4) To control the credit conditions of the other banks so that the gold reserve was not depleted. (5) To act as the country’s representative in international discussions on monetary policy, or in the maintenance of an international monetary standard.

Mr Manning dealt with the early history of the Bank of England, and went on to explain how it became the practice of private banks to keep their gold reserve in the Bank of England. As the Bank of England kept the whole of the gold reserve, and its note issue was dependent on this reserve, a demand for gold for export was met by the bank, and this demand reduced the note issue, which contracted credit. The speaker fully explained how the bank acted as the Government's banker, and dealt at length with its operations with Discount Houses and other institutions. He said that the method which had been followed for years had not been so effective since the war, and another method had been brought in, which was used very sparingly when all countries were on the gold standard. This method was the buying and selling of securities by the Bank of England in times of need. By the bank rate, and open market trading, the Bank of England was able to control credit in England, and was able to control the gold reserve which regulated the note issue. A misuse of credit in one country reacted on other countries, and in order that this should not occur without due cause, a custom had grown up of exchanging views on monetary policies by the governors of central banks. Thus the countries w-ere drawn to some semblance of an international currency, or to some unified policy of currency control. Present conditions had upset these calculations, but the need for a common policy was more urgent than ever. Mi' Manning said that the question was whether New Zealand should have such a system of central banking to control credit and currency, and to keep the Dominion in step with the monetary policy of other countries. There were six banks in New Zealand, and four of them were owned and controlled in Australia, and each of those four banks had the right to determine the note issue of this country. The note issues in this country were still governed by war regulations, and he considered it was time the note issue was brought into uniformity with other countries. He asked if there was not need for the centralising of control of currency. There should be one institution in New Zealand responsible for the issue of credit. and one which could link up with other countries. The gold reserves of a number of countries had been centralised, and the time might come when there might be a desire for the gold reserves of the whole world to be centralised in one institution. When the nations learned to live In harmony, then the Bank of International Settlements might become an International Bank, and the first step on the road to this objective was that every country should have its own central bank. The lecturer answered a number of questions, and was accorded a hearty vote of thanks for his address.