Public Opinion THE RESERVE BANK

Wanganui Chronicle, Volume 83, Issue 255, 28 October 1939, Page 6

Public Opinion

THE RESERVE BANK

Sir. In answer to the letter of "A.B.C.," I did not say that banks can create financial credit out of nothing. Several things are required: book, ink, pen, and the officiating clerk. But this just about covers everything that 1 a modern bank requires in creating ' over 90 per cent, of the present 1 money now in use. The security is supplied by the borrower in each in1 stance. Should '‘A.B.C." doubt my word here are my authorities: l<icyclopedia Britanica, Vol. 3, page 48 ' states, "Banks create credit. It is a 1 mistake to suppose that bank credit is • created to any extent by the payment of money into the banks. A loan 1 made by a bank is a clear addition ’ to the amount of money in the community." Right Hon. Reginald McKenna, chairman of the Midland Bank L and the ex British Minister of Finance, stated: "Every loan or overdraft * creates a deposit and every repayment “ of such destroys a deposit. And they who control the credit of the nation direct the policies of the Governments ’ and hold in the hollow of their hands ~ the destinies of the people." Further, he states: "I am afraid the ordinary citizen will not like to be told that banks can and do create and destroy >. money. The amount of money in ex- ' istance is strictly governed by th? [■ action of t he banks. Every loan made ,i by a bank was a source ot new money / which was owned by the bank, being t a new debt that must be repaid, and r it was created by a stroke of the s pen." When Mr. McKenna made th > ■' statement 1 am sure he did not realise i it was going to be used against him - by his opponents. If he did, I am / certain he would have thought twice t before he did. , With such an overwhelming evi- - dence against, his conception ol s finance, "A.B.C." must see lor himself s that if the Government created all the - money, it has to borrow annually from i the banks, through its own Reserve - Bank, it would be doing the same 1 thing that the private banks are doi ing daily in their ordinary transactions. Government created money e would act in the same way as pj i1 vately created lot, with one advans tage in its favour, that is there would - be no interest burden, a fact, that 1 would be welcomed by every taxpayer, i including ’ A.B.C." His other point that increase of I money can only come through sale of t goods overseas is easily aisproven. in 1914 the entire legal tender in Great Britain was £75,000,500. Total deposit in all institutions were just under 11,500,0(10,000. At the end of the L war the increase in the national debt was almost £8.000,000.000 or almost ' r ’• seven times tbe entire money in cx1 istence at the commencement of the 1 war. How’ very interesting?- I am, 1 etc.. ’ "E.F.G.’