RESERVE BANK

Timaru Herald, Volume CXXXVIII, Issue 19861, 26 July 1934, Page 5

RESERVE BANK

TAXPAYERS TO BEAR LOSSES POSITION UNDER FINANCE BILL By Telegraph—Press Association • WELLINGTON. July 25. The Finance Bill, introduced in the House to-night, provides for the validation of the appointment of the shareholders' directors of the Reserve Bank. These directors, when appointed had not been registered proprietors of their shares for six months as -required by the Act, but the clause states that their appointments shall be regarded as valid. Another clause states that any appreciation or depreciation of assets of the Reserve Bank due to any alteration that may be made in the exchange rate while the value of local currency is not fixed by statute in terms of sterling is to be credited to or borne by the Consolidated Fund. To that end the Minister of Finance shall from time to time pay to the Bank from the Consolidated Fund an amount equal to the amount of any depreciation of assets of the Bank (expressed in the currency of New Zealand) due to the fixation by statute at any subsequent time of a definite relationship between the currency of New Zealand or sterling or due to any alteration of the exchange rate that may be made by the bank. Conversely, should there be any appreciation of assets of the Bank due to the same causes, the Bank is required to reimburse the Consolidated Fund. A clause provides for the provisional amendment of the Loans Act, 1932, to become effective if and when the Reserve Bank acts as registrar of inscribed stock, an office at present held by the Secretary of the Treasury. There is a redefinition of some powers conferred on the Bank by the Act passed last year. Bills and Securities. The power given to discount, buy and sell bills of exchange is extended to include bona fide transactions in relation to the production, marketing and sale of live stock and primary products. However, the Bank shall not at any time acquire any bills or other documents exceeding in value 5 per cent of the total value of the Bank’s assets. Under the original Act the Bank was empowered to buy and sell New Zealand Government securities or securities of the Government of the United Kingdom, but the amount of securities so held with an unexpired currency of more than three months it was stipulated should not at any time within the first four years of the Bank's operations exceed an amount equal to twice the paid up capital of the Bank and its reserves, and should not subsequently exceed the paid up capital and reserves. An amendment is made providing that the amount of securities with an unexpired currency of more than three months held by the bank shall not at any time exceed three times the paid up capital of the Bank and its reserves. Another clause provides that a bill of exchange payable outside New Zealand shall be deemed to bear two good signatures if it bears one such signature and is the subject of an irrevocable undertaking to accept given to the Bank by any person or firm whose signature to the acceptance of such bill would constitute a good signature. Another amendment is designed to enable the Reserve Bank to deal in exchange in amounts of £IOOO or over. A further provision states that if any shareholders, director ceases to be a shareholder of the bank he shall thereupon vacate office. The date of the first annual meeting of shareholders was originally fixed for the present month. An amendment provides for the postponement of the meeting until any time not later than July 31. 1935 The directors are empowered to authorise payment in advance to the Consolidated Fund in respect of profits if satisfied that there will be a surplus available for distribution at the end of the year. Other Provisions of Measure. Another clause repeals as from August 1 next the Banks Indemnity (Exchange) Act, 1932-33. Power to extend the duration of timber cutting licenses conferred on Maori Land Boards by the Finance Act, 1932, is extended under a clause in the Bill. It is also provided that local body sinking funds are to be paid where domiciled. An extension by two years of the period of the legislation reducing interest, rent and other fixed charges is provided. Another amendment confers on the Governor-General in Council permanent authority to affix rates of interest on deposits in savings banks. The authority of the Go-vernor-General-in-Councii to fix the rates of interest on deposits with building or investment societies is extended to cover the period until March 31. 1937, but that limitation of time shall not apply to rates of interest that may be paid by building societies on savings bank deposits within the meaning of section 32 of the Finance Act, 1932. An extension of two years is also provided in connection with the application of the National Expenditure Adjustment Act • (part 6) relating to rates of interest on deposits with trading companies. The clause is designed to restrict local bodies which sell their capital assets, and provides that the money shall be used for paying off capital charges. The restriction applies to all moneys received by local authorities after the passing of the Bill from the sale of assets representing loan money or other capital moneys representing loan money. Questions by Members. Mr J. Lee (Lab.. Grey Lynn), asked how soon the Consolidated Fund should meet deficits made by the Reserve Bank. Mr R. A. Wright (Ind.. Wellington Suburbs), wanted to know what exchange manipulation had cost the Consolidated Fund, also what extra amount the Government had had to pay in interest.

Mr A. J. Stallworthy (Ind., Eden), classed the Bill as more composite legislation. He said the House was asked to enact another Bank Indemnity Bill, while it was in darkness regarding the original Indemnity Act which the new measure was to repeal.

Mr M. J. Savage (Leader of the Opposition), asked the Minister of Finance if he would consider the promise he made when the original Bill was before the House. He had then promised to have an amendment prepared for dealing with the appointment of Governor and Deputy-Governor. The Minister would remember that when the Bill was returned to the House it had been completed. Members hands were tied and control of tin institution was passed over to a majority of people who had private interests to serve rather than to those who had the public good at heart. He asked the Minister 4f he would draft an amendment even at that late stage providing for the appoint-

ment of the Governor and DephtyGovernor by the Governor-General-in-Council. It was on that promise that the original Bill was allowed to go throught the house.

Mr W. A. Veitch (Ind., Wanganui), said the Bill was re-enacting the exchange manipulation, bringing ‘it into the same relation to the Reserve Bank that it had with the trading banks. There was also the question of re-enacting the compulsory payment of sinking funds by local bodies. He appealed to the Minister not to put the amendment through at the present time.

Mr D. G. Sullivan (Lab., Avon), said the House had never had a statement from the Minister regarding the cost of exchange. Mr Forbes: You will have the Budget in a week or two.

Mr Parry criticised paying the Governor of the Bank £SOOO a year free of income tax, also the payment of an extra £SOO a year to the Secretary of the Treasury while other public servants were not allowed to earn extra money. Mr Veitch said he thought there would be considerable consternation at the Minister’s announcement that there would be substantial losses made by the Reserve Bank as a result of the responsibility of handling the exchange fund of the Government and that the losses were to be passed on to the Consolidated Fund. Minister in Reply. Mr Coates, replying, said that there was nothing for members to concern themselves with at the present stage, and there was no reason to say or suggest that there was likely to be a loss on the surplus exchange held in London. The cost of exchange was approximately £1,650,000. which included the increased cost of transmitting money to London to pay committments there, also debt services, and 5 per cent, on Treasury Bills that were borrowed from the banks. Regarding the statements that there would be consternation throughout the country Mr Coates said that Reserve Bank shares that morning were quoted at £6 ss. That was an indication of the confidence people had in the shares. Eight thousand shares were made available to the public. Referring to money to be returned to the commercial banks, Mr Coates said that in the arrangement he made with those banks who gave Treasury Bills for exports sent overseas, the banks asked that when the Reserve Bank was set up the Government should pay them in currency. Those bills would be met by Reserve Bank bills on August 1 or when they became due after that. The Reserve Bank had issued a statement that it had fixed New Zealand currency on sterling both for gold and credit in London for a long period.

A voice: Will that mean at least a year? Mr Coates: “It might mean two years. Ido not say it will be.” He thought that the statement would be accepted by the commercial banks, business interests and the people generally.

Regarding the point raised by Mr Savage about the appointment of the Governor, Mr Coates said he had endeavoured to have an amendment made in another place, but found that it was impossible as the constitution of the other place did not allow it. He did not think that any good purpose would be served by making that provision now, as the appointments were for seven years. Parliament could in future, if it thought desirable, make an alteration. The Bill was read a first time.