RESERVE BANK

Wanganui Chronicle, Volume 79, Issue 85, 9 April 1936, Page 8

RESERVE BANK

AMENDMENT BILL UPPER HOUSE DEBATE LEADER STATES OBJECTS [ Per Presf Association | WELLINGTON, April 8. The Legislative Council met 10-day ■»L a.ai. aud urgently accvrdeu passage to the Keserve Bank of New Zealand Amendment Bill. la moving tin? se< cud reading, ihe Hon. Fagan, Leader ut lue Council, set out tae objects of ihe Bill ana said mat the buverument's power vou d be used sensibly and creuit issued only fcr citation of assets such as railways. lli« Bouses of Parliament would always ue consulted aud lae r»est check was a three-ycar Pai.lauicUt. l*hc Keserve Bank would be strengthened so tuat no private or other iineicsts could deal a blow at the sovereignity of the State in the realm of cut r«.ticy and banking. Dealing with me • uutc.lat-vu of tue share capital, tire o.un. Eagaa »a»d lhat to couipeu-'ate xae Keaeive Bank for casn payments it might make the Government v.ould pay the amount to the Bank eituer in cash or acemitics and thus the original thus keeping inratt its general reserve • ap.tal of fcJW.UOO would be retained, fund, while the Government wouiu meet the co?t of buying out inc shareholders. Tee BanK would i*tt only control currency credit internally, but was charged with a duty of cvuliolling overseas transaction* in resp?«-t to New Zealand business. That >hui.ld make no difference whatever to the firms who were carrying on business as importer? or exporteis, but it would make a difference to speculators and financial institutions who would use sterling funds for their own end®. Sterling Funds Dealing with starring funds, the iivu. Fagan said that au exporter of Jal ;amos would receive payment Ifum bis bank in New Zealand curieu* y and so would not suffer. Jhe iarmer s u:»uk would then sell the sterling to Hie Ke?e»ve Bank and would be paid in New Zealand currency. Sterling xuuds would thus be at the disposal vt tue Keserve Lank and would be used tv meet New Zealand's overseas deot commitments and to finance imports just as at present, hut there would be uj oppc-itunny •or New Zealand's sterling luuds io ve o»ed bv speculator and mkeu out oi • «>ntrol of New Zealand. I’ne first Leserve Bank did uc«. entirely meet New Zealand's neeos. there was no money market in New Zealand and no short term marker in the English .-eose. hence the Keserve Bank coutiol O' means of any of the recognised open market policies wtAild nave little influence on currency and credit because The mean.; of influencing it were nut developed in New Zealand. Ine oniy means of affecting the volume of money and credit issued >n New •italand was by means <•< movements in exchange rate. Ine authority vt t«»e bank io buy and sed Government '-eeuritie* bad been expanded and ibis would enable Parliament to determine the amount of long term accommodation that might be necessary to nuance special productive public works. Ine powers in t«»e United Kingdom Gold standard Amendment Act, providing for a suspense of the gold standard in Britain, wvie far more jrastic than those incorpora ■ «J in me Bitt liefore rue Council. Act.on in Britain Tee British Minium parsed « Bi I iu empowerin g tile Icea-urv »o set up a clearing unite for collecting and ..eating witu certain debts end • :.ons ou impoits, thus extensive had been given to the British Treasvty iu conduct operations necesary io preserve the foreign na*.ie and foreign ex- : aange u»' Britain. I'he President vii the United states had been given similar powers by recent legislation. >»tcii powers we v necessary i'i any iipderu .-state aud particularly necessary when there was a possibility of the Government being undermined bv financial influences wno had only their cwvn inter ests to sene, such prwisivi.s me. y ensured that tba contr*’! of credit and currency was really iu ine hands <»i the State. Dealing with reserve requirements, the Hon. Fagan said that the trading banks could build up a cieu.is structure equal to fourteen times their balances with the Keserve Bank. Judging by rhe ualanees of bank* at the present time, they can expand by about twenty million sterling and »**at was a potentially dangerous situation and might easily lead *o an iuflatiOsiasy boom. The same situation existed |! the lnited States, hence piovisi.in bad been made to vary the balances wb’<_b the member bank? must keep with the Federal Kcserve Bans, tuns it the banks had a big balao-.e witn the Keserve Bank they could start inflation, but for that piovisivn. Jn New Zealand Do sucu provision existed, despite the fact that ior some years moneiary authoritie? had been nd its aaOption. Power was now iucluoed iu tue present B*ii, however if tb-e uauk> had balances £2U,OOV,OVO with the Keserve Bank and a reserve against demand liabilities, the present raw meant that *ney toulu inflate so that sbort-te.m deposit? stood a a figure of £-lat‘,VOV ; duu. I uuvr I’he change now proposed the balances the trading banks had to keep might lie ' nried upwards, so that if the banks were tending to start inflation, the reserve requirements ’nstead of being ~ per cent, could be 10 per ceut., w..tch meant that instead of expansion fourteen Huies being allowed for f would Of only ten times In conclusion, th-e Hou. I’agun said ioat for fifty years lue Council wad followed the precedent that, when a uange of Government occurred, the elected Chamber had toe r;j*at to carry out the policy rati tied bv tue electors. The Council always retvgnised that policy of the Dominion determined at the polls and, although he welcomed detailed criticism, he thought vhat he wag right in assuming that he would not receive unreasonable obslrufli£D. Future Policy of Bank. When the Council considered rhe b’e■erxe Bank of New Zealand Amendment Bill in the afternoon, Hon. 11. Masters said that the attitude of the Council should not be antagonistic io legislation of a policy nature. Had There been power to amend the Bill, he would have thought lhat the provision which enable the Secretary to the Trea

might have been amended. The legislation should not be hurried. Mr. Masters said that judging from what he had heard inside the Council and from people outside during the last four years, the depression had been brought about by the sins of the previous Gov eminent vr by the monetary policy which had been followed. The depression had not been brought about by internal troubles or by rhe administration of the Government. but because primary produce price.* had nor met the requirements of rhe country. Every country during the last five or six years had raised tariffs and licensed the importing of goods, and a policy of economic nationalism, had been adopted which had decreased the quantities of produce sent out of New Zealand and had curtailed the spending power of the people who had bought New Zealand’s good s . He maintained that rhe real cause for the depression was not the control within the country. If the Leader of the Council could state what the policy of the Government was going to be when the bank was established and tell the Council how the Government was going to carry out things that had been definitely promised, and redeem the note issue without inflation, he must have a view regarding the Bill that differed from that of rhe speaker. He was not in the least concerned whe’hcr the bank was going to be a Stale bank or not: whether all the capi tai was owned by the people of N*w Zealand through the Government, or whether the bank was wholly or partly owned by private individuals. What he was concerned about was the future policy’ of the bank. The Bill privided that the whole policy of the bank should t-ome under the control of one rr tn —rhe Minister of Finance. That might be quite all right, but what was that one man going to do? What would be his altitude when he was vested with that tremendous power? If the Prime Minister was not going to borrow, if he was not going io increase taxation, and if he was not going tn increase the unemployment tax, how did he propose to redeem the promises that had been made, not at the election, but since the election? The completion of the Napier line and the South Jslaind Main Trunk line had been mentioned. The country had been promised a vigorous public works policy; main arterial toads were to be taken over. The Prime Minister had said that the whole of New Zealand required painting. New railway stations were wanted. A member had said that rhe expenditure on eduction should not have been reduced, but increased. Pensions were to be increased all round, cuts were to be restored, a health scheme was to be started, but how was it to be done? “I am not saying that any of these works should not be done in their proper places.” Mr. Masters said, ‘'but after all that we come ro guaranteed prices.” Mr. Masters said the. Government

was allowed to issue money without limit. Jf during the next year £6,000,000 was to be paid out to guarantee the price of butter and cheese, provision should be made for redeeming that amount. The second reading was agreed to without a division, though there were one or two dissentient voices. The Bill was put through the committee stage, read a third time, and passed, and the Council rose at 4.45 p.m. till April 16.