IMPRESSIONS FROM RESERVE BANK FIGURES.

Timaru Herald, Volume CXLV, Issue 21280, 25 February 1939, Page 8

IMPRESSIONS FROM RESERVE BANK FIGURES.

Latest Reserve Bank figures should not be overlooked by. any thoughtful New Zealander who regards the restoration of the economic equilibrium of the country as the first duty of the Government and people. At the moment the proportion of reserves possessed by the Bank represent just over 5/- in every £1 of the Bank’s liabilities. This figure, by the way, is within a small fraction of the statutory limit imposed under the constitution of the Reserve Bank. The figure is interesting because it serves to emphasise the rapid deterioration of the financial position of the Reserve Bank within the past few years. In 1935, for instance, the ratio of reserves was 99.4 per cent.; in other words, the Bank possessed assets valued at nearly £1 for every £1 liability. Since that year, the reserve fell from. 92.0 per cent, in 1930, 75. G per cent, in 1937 to 64.5 per cent, in 1938. As a matter of fact the biggest and most serious shrinkage came last year when the reserve of assets to liabilities shrunk from 67.2 per cent, in January to 25.9 in December. The explanation of this shrinkage will be found, of course, in the rapid deterioration of the sterling exchange holdings in London by all banks from £25,409,000 in January, 1938, to £9,677,000 by December of the same year, and the Government’s heavy borrowing. The Reserve Bank’s share in the sterling exchange holdings in London has fallen in a single year from £16,231,000 in January to £4,678,000 at the end of 1938. Since the beginning of the year there has been little improvement in the sterling exchange position, although import restrictions now in operation would have rapidly improved the position, but for the fall in the value of New Zealand’s exported products. Taking figures over the period since the present Government came into office, it will be found that whereas New Zealand’s holdings—in all the Banks—in sterling exchange in London stood at £45,250,000 early in 1936, to-day the holdings have fallen to £6,807,000. Synchronising with this shrinkage of assets has been the rapid increase of Government indebtedness to the Reserve Bank. Twelve months ago the advances to the State represented merely nominal operations, to-day the scale of borrowing has reached big figures, as the following comparison shows: Advances to the State At Marketing Account Other Purposes February £ £ 1938 5,974,000 1,300,000 1939 6,718,528 12,500,000 It will therefore be seen that whereas the sterling hold ings of the Reserve Bank have shrunk from £16,231,000 in January last year to £4,523,000 this week, the State’s liabilities to the Bank have increased in the same period from £7,275,000 in February last year, to £19,218,526 to-day. Hence the rapid fall in the Bank’s ratio of assets to liabilities to within a fraction of the statutory low limit.