PLAN FOR CENTRAL BANK

Timaru Herald, Volume CXXXVII, Issue 19625, 20 October 1933, Page 9

PLAN FOR CENTRAL BANK

REPLY TO LONDON CRITICISM COMMENT BY THE PRESS RESERVED United Press Association—By Electric Telegraph—Copyright (Received October 19, 10.30 p.m.) LONDON, October 19. The financial papers, without comment, give prominence to the cable from Mr G. W. Forbes (Prime Minister of New Zealand) to Sir Thomas Wilford (High Commissioner) detailing the constitution of the directorate of the Central Bank in reply to criticism published here. BILL BEFORE HOUSE ALTERATIONS EXPLAINED By Telegrapb—Press Association WELLINGTON, October 19. The Reserve Bank of New Zealand Bill was introduced by GovernorGeneral’s Message in the House of Representatives this evening, and urgency was accorded the first reading. Replying to Mr P. Fraser (Lab., Wellington Central), the Prime Minister, the Rt. Hon. G. W. Forbes, said that 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 that 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 shareholding to a maximum of 500 shares per person. Another clause changed the rate to be paid on C o -ernment 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 Govemor-General-in-Council, to issue bank notes of a denomination less than 10/-. Another clause changed the accommodation that might be granted to the Government from one-third to one-half of 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 now proposed to omit the word "sole.” Another change ensured that the 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 non-agreement between the governor of the Reserve Bank and a trading bank as to the appointment of such profits it was to be referred to arbitration. This l:ad now been omitted. It was previously provided that at some future time, to be determined by the Govemor-General-in-Council, the Reserve Bunk should effect exchange with sterling at a rate not varying from parity by more than 30/- a £IOO. This had now been omitted as it might seem 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. Minimum Reserve Fund. 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 that in the first Bill it was proposed that the shareholders should elect five directors, and governor and deputygovernor, 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 he had no voting power. In addition, the State was to appoint three directors, while 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-General-in-Council. In making this change the Government felt that there could be no valid argument against the representatives of the people having a strong representation on the directorate of an institution of major national importance. Continuing, Mr Coates said that another clause made the constitution of the executive committee more elastic. It war also proposed to alter the cumulative dividend from 5i to 5 per cent. Other alterations Included the strengthening of the inspectorial powers of the Reserve Bank, a provision that no trustee should be given control of more than 500 shares and other changes mainly of a technical nature. At Book Value. Replying to interjections. Mr Coates said that gold from other banks taken over by the Reserve Bank would be taken over at book value. Mr R. A. Wright tc.. Wellington Suburbs): 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 £3/17/10 ■ n ounce. Questioned as to the salaries of the directors. Mr Coates said the amounts were not specified in the Bill. Mr W. J. Poison (C., Stratford! expressed the opinion that the control of the bank should be in the hands of the State and not In the hands of the shareholders. Provided the Bill was based on service to the people and not on profit to the shareholders, he was prepared to assist the Government with It. He agreed with the principle - share capital so long as control by the State was predominant. The State ! should be given predominance in the j directorate and he considered that the ' office of governor should be a State j appointment rather than an appoint-

ment by the shareholders. He was not prepared to allow the control of the bank to pass out of the hands of the State. Labour Criticism. Mr F. Langstone (Lab., Walmarino) asked what was the need for a Central Bank in New Zealand. He declared that Central Banks had not been a success In other countries. Mr Wright said he agreed with Mr Langstone. The House had never been told who is was who wanted the Central Bank. In his opinion, It was to be a smoke screen to cover up exchange manoeuvres. Mr W. J. Broadfoot (C., Waitomo) said that in his opinion the main point should be the predominance of Government representatives on the directorate. Mr H. T. Armstrong (Lab., Christchurch East) said that the sole object of the Bill was to enable the bank to control the State. He declared that the Dominion’s finances were not going to be controlled by a bank set up within New Zealand, but by International financiers from the other end of the world. Government’s Belief. Replying, Mr Coates said that members had inquired who had asked for the Bill. The answer was that it had been asked for by the greatest organisation in the country—the Government. The Government believed that it was impossible to meet satisfactorily the future requirements of the country unless the necessary machinery was set up. Replying to an inquiry as to how the Bill would stabilise the monetary policy. Mr C'ates said that was a matter for Parliament. Parliament must at all times control the country's monetary policy. Mr A. M. Samuel (Ind., Thames): 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. Replying to another Interjection. Mr Coates said the bank would be a New Zealand institution composed mainly of New Zealanders. The Bill was read a first time. Mr Forbes intimated that Private Members Bills would be dealt with tomorrow. The House rose at 10.5 p.m. till 10.30 am. to-morrow.