The Wanganui Chronicle FRIDAY, FEBRUARY 19, 1932. BANKING AND SPECIAL INTERESTS

Wanganui Chronicle, Volume 75, Issue 42, 19 February 1932, Page 6

The Wanganui Chronicle FRIDAY, FEBRUARY 19, 1932. BANKING AND SPECIAL INTERESTS

'pHE current controversy regarding the rate of exchange has revealed the tremendous pressure which can be exerted by special interests in favour of a course of action which suits those particular interests. There are those who seek a low exchange in the interest of importers; there are those who would like to see the credit pool abandoned because they have their own facilities for establishing credits in London; there are those who are advocating a free exchange situation because they believe that their interests will thereby best be served; and’there are others who believe that the exchange should be deliberately pegged at a high rate so to compel the community to pay tribute to the primary industries. Without considering which of these viewpoints is the correct one, it is to be that it would be undesirable to decide which course to follow by a donnybrook between the conflicting interests. The Government has shown real wisdom in removing the rate of exchange issue from being the bone of contention between conflicting interests into the calm atmosphere of enquiry by a .committee of trained economists. These economists will be disparaged as mere theorists, but this is no disparagement at all, for where practice violates sound theory the violating practice is unsound. But the committee of economists cannot remain perpetually in session. Were they to do so they would have to resign their professorships and become bank directors. In countries where a central bank operates the exchange policy is determined by the directorate of the central bank, for the handling of the exchanges is one of the functions usually reserved to the central bank. The directorate of the central bank in the present circumstances would be a matter of great importance. The appointment of individual memljprs of the board of directors by special interests is the procedure resorted to in some countries in Belgium, Bulgaria and Chile. This procedure, however, is open to objection, however, because representatives elected by special bodies necessarily have to look for these bodies for re-election and may be drawn unconsciously into regarding questions of credit policy from the point of view of its effects on the special interests they represent rather than from that of the country as a whole. On the other hand, the special knowledge which representatives of special interests are presumed to possess, may be very helpful to the board. The problem is to secure that special knowledge, while at the same time keeping it free from the pressure of special interests. In South Africa, the shareholders of the Central Bank elect the directors, but it is laid down in the statute of the bank that the directors must include persons possessing such special knowledge. In his report on New Zealand, Sir Otto Niemeyer advocated a similar arrangement for New Zealand should a central bank be established here. Recent experience has shown the great importance of such provisions.