SUSPENSION OF STERLING CONVERSION

Wanganui Chronicle, Volume 82, Issue 290, 8 December 1938, Page 8

SUSPENSION OF STERLING CONVERSION

RESERVE BANK NOTES

The notice gazetted by the Minister l of Finance suspending the statutory i obligation of the Reserve Bank to give sterling in exchange for its banknotes lis a corollory to the control of imj ports and the licensing of exports:— I Provision for the conversion of Reserve Bank notes are contained in section 16 of the Reserve Bank Act, 1933, as follows. — (1) On presentation at the head office of the Reserve Bank in Wellington of notes less than £lOOO it shall be the duty of the bank to give sterling for such notes for immediate delivery in London. | (2) On presentation at the head •office of the Reserve Bank of gold or of sterling for immediate delivery in London, in either case to an amount not less than £lOOO, it shall be the duty of the bank to give notes in exchange therefor. In the original Act the amount specified in either case was £5OOO, but [this was subsequently reduced to | £lOOO by a clause in a 1934 Finance : Act. It is sub-section 1 of the above section which has been suspended by the Minister of Finance. This suspension will take effect as from to-day. I The Rates of Exchange. ■ The rates at which the bank was : prepared to give sterling funds in I i,ondon in exchange for its notes, and • to give notes in exchange for gold or for sterling in London, were announced by the Reserve Bank on July 19. 1934, to be fixed on August 1, 1931, as follows: 1. Rate at which sterling will be given for immediate delivery in London in exchange for Reserve Bank notes, £125 New' Zealand equals £lOO I London. I 2. Rate at which Reserve Bank 1 notes will be given in exchange for I gold, or for sterling for immediate dc- ' livery in London, £124 New Zealand | equals £lOO London. i At the same time it was stated that I the Reserve Bank would aim at retaining these rates unchanged for a long period, unless there should be a marked alteration in existing conditions. To assist in achieving this measure of stability, the Reserve Bank would be prepared to enter into forward exchange contracts with the trading banks. ■ "The Reserve Bank do not wish to j compete for exchange business in the ordinary course provided adequate facilities are available elsewhere, though they wiil, of course, be pre- ' pared to fulfil their statutory obliga- , lions as indicated above if requested •to do so. The trading banks will be I free to formulate their own exchange I policy and to fix their own buying .and selling rates for London funds. "Sterling funds held in London by the Reserve Bank from time to time • should be regarded as the ultimate ! monetary reserves of the Dominion, ; lor use in case of need.” Legal Tender Status of Notes. i The position as regards the circulal lion of the Reserve Bank's notes with--1 in New Zealand is not affected by the I suspension of sub-section 1 of section 116 of the Reserve Bank Act. The ReI serve Bank is vested with the sole I right of note issue in the Dominion, 'and its notes are legal tender to any amount in New Zealand. The suspension of sub-section 1 of section 16 means that the Reserve Bank is no longer bound to give sterling in exchange lor its notes. Thus it is in a position to exercise full control over the transfer of New Zealand currency abroad, whether for purely trading purpose or for other reasons. The London Funds. Reference to the London funds was made by Mr. L. Lefeaux, governor of the Reserve Bank of New Zealand, in his speech at its first and only annual I meeting on June 7, 1935, as follows: • "Now these London funds represent | something tangible and real; they I arose in the main from the sale of | goods, the proceeds of which have not yet been used in purchasing other goods or in providing for the other I requirements of the Dominion, includI ing the service of the overseas debt, | they could be converted into gold either by direct purchase in the Lon--1 don market, or, indirectly, by the purj chase of the currency of any country on the gold standard; they can be made available without delay at any time to meet external financial reI quirements. In fact, they, togethei ’with the gold still held by the bank, provide a backing for the currency of this Dominion, than which it is in my opinion difficult, if not impossible, to imagine a better in existing circumstances.”