CENTRAL RESERVE BANK

Wanganui Chronicle, Volume 74, Issue 139, 15 June 1931, Page 9

CENTRAL RESERVE BANK

IS’ DESIRABLE FOR N.Z. MAYOR OF DEVONPORT’S ADVOCACY. Tho recent discussion of the Contra] Reserve Bank proposal in “The Chronicle” has prompted a correspond ent to send us the following lottei 1 written by Mr. J. Hislop, the May 01 of Devonport, Auckland. The coinmunication bears date January 6, 1931 “For two years I have urged tin need for the establishment of a Con I tral Reserve Bank in New Zealand ) Anyone who has studied this questioi must agree, that our tresent dcccntral ised banking system is totally inade . quato for the requirements of thi ; country. If we wish to reap the ful , benefits of our wonderful possibilities ) the present arrangement should not. b< permitted to continue. “My suggestion was that Sir llenix ; Strakosch be asked to advise the Gov I eminent as 1o the necessity of estab ; lishing a Central Reserve Bank foi I New Zealand, and to report upon thi ■ true relationship between the Stat': and tho Bank of New Zealand. “Since then, however, wo have had a visit from Dr. T. E. Gregory, Proi fessor in Banking at tho London Unij versify, and Sir Otto Niemeyer of the I Bank of England, whose report on this ! question is awaited with great inter- | est. The Neimeyer Report. “I would point out that these authorities have already reported on this same question in Australia and other countries, where they have recommended tho adoption of a Central j Bunk System, so it is safe to predict l that their reports will bo on similar lines, namely:— “Ist. That a Central Reserve Bank bo established in New Zealand, un the basis of interest to be one-third held by the State, one-third by the associated Banks, and one-third by the genera j public. “2nd. That the partnership between the State and the Bank of Now Zealand be brought to an end. This, of course, must follow, as such a purtnerjuip would be unthinkable with the establishment of a Central Reserve Bank.

‘‘Uris division of interest in the bank is ol vital importance, as it will re illy mean that in time a two-thirds interest will be held by the Associated Banks as against a one-third interest held by the State. This is the rock upon which we may permanently wrec!■< our chances of ever releasing our country from a money control and would completely nullify the real benefits which the establishment of such a - bank will bestow on the country, if } loft untrammelled by vested interests. . It would bo equally disastrous to pert mit this bank to be influenced by any particular party Government, and rho I bank irust bo answerable only to the sovereign authority of Parliament. Might I therefore set out as briefly as possible, the constitution of such a bank, best suited to the requirements of New Zealand, in the hope of invit- ; ing criticism and suggestions for improvement? A special Act of Parliament creating a Special Charter, establishing the Central Reserve Bank of Now Zealand. “Head and only office: Wellington. Governor: To be recommended by the Empire Central Bank, the Bank of England, and appointed by His Excellency The Governor-General. De-puty-Governor: To be appointed by special committee of House of Parliament. Directors; Representing the Treasury, appointment by Minister of Finance; one each representing the Associated Banks, local bodies, primary producers, secondary industries. 4 ‘The Act to bring into line the activities of all other banks trading in New Zealand, in their relationship to the Central Reserve Bank. Functions of Reserve Bank. “The functions of the Central Reserve Bank, as laid down by Sir Ernest Harvey, Deputy Governor of the Bank of England, are:— “1. A Central Bank should possess the exclusive right of note issue. “2. A Central Bank in its management and policy, should bo free from Government control and the influence of politics. “3. A Central Bank should be entrusted with the entire banking business of the Government, and all public and local bodies. “4. A Central Bank should bo the banker of the trading banks and should act as a settling agent for clearing differences between such banks. “5. A Central Bank should not ordinarily compote with the trading banks for general banking business. “6. A Central Bank should ensure to the public the provision of adequate banking facilities on reasonable terms. “7. A Central Bank should not take moneys at interest on its own account. “8. A Central Bank should quote publicly the rate at which it is prepared to discount approved bills, and should publish at regular and frequent intervals a clear statement of its position. “9. The assets of tho Central Bank shouhl be of the most liquid character possible. “10. A Central Bank should not draw or accept bills payable otherwise than on demand. “11. A Central Bank should not engage in a general exchange business on its own account for the purpose of earning profits. “12. A Central Bank should not engage in trade, nor have any interest in any commercial, industrial, or other undertaking. “13. A Central Bank should have no branch outside its own country, but may have agencies abroad. “14. A Central Bank should have sole control of tho gold reserve. “From the foregoing, it Avill be soon that in a short space of time the whole gold reserve, reserve funds, and ' the amalgamation of the credit of the whole Dominion, will bo centralised under tho control of the Central Rc serve Bank. Th bank will, therefore, speak financially for the Dominion in London, or in any other financial con tro of tho world. In fact, it is the urgent desire of the Bank of England that this should bo, and was recommended as far back as 1922 by the International Economic Conference at Genoa that this should bo tho position of all countries. It is not so much, therefore, as to whether New Zealand shall continue with her present inade. quale system of banking—we shall really have no option, if wo wish to take full advantage of our position as a Dominion of the British Empire ami make full use of such a position on the London and other money markets of the world.

“A little illustration might O o to show how far we fail to do this under j our present r stem: —ln January, I 1929, a loan for a large New Zeal d i public body for £225,000 fell dve in I London. Towards this the Sinking j Funds Commission in New Zealand 1 held £90,000, leaving £135,000 to bo re--1 newed. Tho bank wrote one letter. > The public body replied. On receipt of the reply tho bank cabled their Loudon office to arrange tho matter. This service cost the ratepayer of that district £9,800. From this y>u will see what I mean by taking full advantage of tho London inorey market th.ough our own Central Reserve Bank. This is not exceptional, for if you investigate any loan transactions, you will find that this flotation, although it cost £9,800, compares favourably. This instance could be repeated all over the country amongst our power boards, councils, harbour boards, ami even the Government. “However, my object is to draw the attention of all public men to the pending amendment to our banking system, and to urge them to go into tho question and see to it that when legislation comes down it will give the Central Bank power to confer the real benefits to the community at large, of which such a bank is capable, under good management, of conferring. I would beg - - you, therefore, . discuss this question and take steps to help the Government to carry the necessary legislation. If they introduce the matter in Parliaine.it, and as I said before, the question is ono of such urgency that they really have no option, it Behoves Members of Parliament also to study this question and by sinking all party feeling, re' this all important question high above party politics and render a real service to their country. It is needless to say how serious tho opposition will be, but if tho public men of New Zealand will do their duty, all opposition will bo overcome. ■ Interest of Public Bodies. “Tho special interest that public bodies will have in tho establishment of a Central Reserve Bank in New Zealand is, that all public body accounts will be kept with the bank, ami all cheques drawn on the Central Bank shall be exchange free, although any other bank may receive monies on behalf of the payee to be transferred to their account in the Central Bank. The board of tho Central Bank would also take on the duties of the present Loans Control Board, as being bank ers to tl|O Government and all local bodies, they would be in a position to sanction or I urn down an application, for once having sanctioned it, they would have to bear tho responsibility for it. What a great feeling * satisfaction it would give to the ratepayers throughout the Deminion to know that all applications or loans must pass muster before the Board of Directors of the Central Bank. While this would lead to sound finance on the part of local bodies, and also the Government, for they would bo treated alike, the Centra 1 Bank has much more important work to perforin in helping along the advancement of New Zealand.

Tho Gold Reserve. “The Central Bank would have complete management of the currency of the country and gold reserve, and with the present shortage of gold this is becoming more and nioro important, as by the centralising of the reserve funds of other banks, tho Central Bank will be able from time to time to correctly estimate the currency require ments of the country. They say ‘Union is strength,’ and in no field is this more true than in the field of finance. “With our present decentralised system, gold or actual cash is the only reliable reserve to which we can look for help in time of crisis or depression, and the circumstances which lead to the crisis might have their origin quite outside the Dominion, and the need of strengthening the reserve of one bank will be found common to all, and therefore the contraction of credit by one bank leads to tho contraction by all in self-defence, hence depression of trade and unemployment. Tho sad experience of our farmers in the past with falling prices of wool and butter, shows the urgent need of some stabilising agency such as a Central Bank. “When this occurs, because of the enterprise of some of our primary producers (the real wealth producer of the. country) caught perhaps in a slump and having expended his spare cash in further developing more land and thereby adding to tho permanent wealth of the country, we find ho has so financial ly embarassed himself that he has boon known to walk off his farm. All for the sake of some encouragement and a little credit this man loses his life’s work and the country loses its greatest asset in an able-bodied, honest producer of tho country’s real wealth with his life’s time knowledge and experience on tho land he knows so well. This asset lost is a real and serious one for the country. Nursing Real Assets. “It would be the duty of the Central Bank to tako special care of such real assets, and provide credit through establishing confidence within the or dinary Commercial Banks and so put a 1 stop to this sort of thing. Under th ■ ‘ present do-central system, the lunik. ' dare not go as far as they would likt in rendering aid to our primary pro ducers. In a nutshell the Centra] lie serve Bank is the spring from which the water of life wells up, and the Com mercial Banks are tho pipes by which i tis conveyed to a thirsty economic system. “I would, therefore, again appeal to the public spirited men of the Dornin ion, of all political parties, who wish to cso New Zealand rca ptho full benefits of her wonderful possibilities, to lif’ this question above Party politics and lend their aid and encouragement to the Government, to place on the Statute Book the New Zealand Central Reserve Banking Act.” It would be helpful if Mr Hislop’s proposals were taken as a basis for discussion pending the publication of the Niemeyer report and the Government’s proposals—if any.