BRITISH BANKING

Timaru Herald, Volume CXLVIII, Issue 21558, 22 January 1940, Page 4

BRITISH BANKING

VIEW OF THE FUTURE CONTROL FORCES LET LOOSE Government war measures in Great Britain have accelerated changes which have been occurring in British banking methods. In consequence the future trend of the banking system has been the subject of considerable discussion in London. The London Economist recently expressed the view that “the forces of control and State interference let loose by the war must make for a more mechanistic system, in which until will tend to become fewer and larger, in which individualism and private initiative will tend to be crushed by the bureaucratic machine. The changes in the financial system in the first 10 weeks of the war are described as revolutionary, displacing a process of “dignified evolution.” From the banking point of view, this change has been most apparent in the new control of the foreign exchange and capital markets. Foreign Exchange Policy “With the introduction of a complete official control of the foreign exchange market,” the article proceeds, “the directive. power in monetary policy has finally switched to the Treasury. The broad lines of exchange policy are now devised and amended, as occasion requires, by a Treasury committee on which the Bank of England is represented, but in the role of a minority. The bank is the instrument through which the policy framed in Whitehall is put into operation, and admittedly a considerable power is vested in the few individuals charged with the task of interpreting policy and applying it to the concrete cases placed before them. “But that initiative is being exercised. on the whole, with a regard for bureaucratic standards which would be rated high at the Treasury. If a symbol of this transition of power were needed it would bn found in the concentration of the whole of our gold reserve into the hidden resources of the Exchange Equalisation Account.’ The article goes on to say: “The directive functions of the Treasury and the executive functions of the bank have recently become more and more part of the same machine of currency and credit control. That fusion of the two organisms has already gone further in 10 weeks of war than it did at any time during the war of 1914-1918. The guess can, however, be hazarded that there will be no parallel after the end of this war to the temporary reaction from the centralisation of financial power which occurred during the 1920’5.” Stereotyping of Activities The clearing banks, the Economist declares, are bound to react to the Government control, and it is foreseen that the forces set in motion by the war are likely to make for a certain stereotyping and for simplification in the range of activities which, if carried to extremes, might increase the temptations of a future Government to round off the process by nationalising the whole system. Of the merchant banks and acceptance houses, the view taken is that the impact of the war is also likely

to make for amalgamations. The private banks, and the subtle, delicately balanced international activities in which they find typical employment, represent a conception of economic organisation which accords ill with the heavy-handed bureaucratic control of the financial system which the war has inevitably brought in its wake.