The Wanganui Chronicle. TUESDAY, JANUARY 27, 1948. CURRENT CREDIT POLICY.

Wanganui Chronicle, 27 January 1948, Page 4

The Wanganui Chronicle. TUESDAY, JANUARY 27, 1948. CURRENT CREDIT POLICY.

r J''HE credit policy which the Reserve Bank of New Zealand is requiring the trading banks to pursue or conform to is in the best interests of the Dominion. To put it tersely the Reserve Bank requires that current capital shall be employed for speculative purposes and for permanent investment, bank credit being excluded from these two fields. For the purpose of conducting current business, however, such as the purchase of raw materials and the meeting of obligations in respect to importations bank credit will be available in the usual way. There is no effort on the part of the Reserve Bank to dislocate the trading situation by restricting 'he amount of credit to such a degree that less will be available than is needed to facilitate current transactions. ' To add to the amount of money now available by the creation of further bank credit would be to aggravate the inflated position of today. The Reserve Bank is holding London balances of over £63,000,000 and this sum will be employed to purchase imports from the United Kingdom and elsewhere and to pay for other commitments of this Dominion. As this country requires these imports it is desirable that the corresponding credits in the banks in New Zealand shall not be employed in non-productive ways. If it were, then the owners of bank credit would exhaust their resources, the Reserve Bank would have money in London but the demand for important goods would fall short. That would not be a satisfactory result from a community standpoint. Already the Reserve Bank liability in respect to the currency is high, the Reserve Bank’s return for December 31 revealing that the note issue stood at £50,988,000. In other words for every £63 held in London £52 had already been issued to the public in the form of demand notes. It can be expected that after the holiday season a considerable portion of this high volume of bank notes will find its way back into the Reserve Bank because the public will not require to hold large sums of pocket money. The currency hoarders will no doubt be responsible for maintaining a general high level of the currency in “circulation,” but unfortunately this hoarded money nay be dehoarded in considerable quantity at any moment of panic, and it must be admitted that the public mind is in a disturbed state, some people fearing that a slump is near at hand. With £5 out of every £6 of the London balances already in \ the public’s hands in New Zealand it is desirable to bring about a more stable condition of affairs by bringing currency into permanent investment. National Savings campaigns are seemingly not enough to stein this overflowing tide of money in circulation. In addition to this volume of paper money available to or in possession of the public bank deposits have advanced (in November last) to £167,738,577, with bank advances at £83,208,413, the excess of deposits over advances being £84,530,164. Every bank advance creates a bank deposit. “A” borrowing from the bank to pay “B” creates a debit in “A’s” account but a credit in “B’s” account. There has been no curtailment of advances over-all, they moving up from £45,415,014 in 1943, an increase of £37,793,399 in five years. In normal banking conditions advances and deposits are usually in a state of near balance, but today the deposits are 200 per cent, of advances. Such a situation calls for rectification. How can this best be done? The steps taken by the Reserve Bank to restrict bank credit extensions to current business transactions and to productive work leaves the way open for using this large volume of credit which is now. available to the public and in its own disposition to do what it will with. If desirable opportunities for investment are not made available it will soon find less desirable channels for employment. Satan finds work for idle capital, as well as idle hands, to do. The channels for investment within New Zealand at the present time are too restricted and those shareholders who are entitled to take up new issues of shares in desirable Australian concerns should not be hampered in doing so as they are now. There is r.o apparent reason for restricting the flow of capital to Australia and discouraging a counter flow of capital from Australia to New Zealand. The chances are that this two-way flow would balance up over the years and in any case the wider the field of investment the more staple is the portfolio against the risks of investment and business generally.

Further, encouragement should be given to those with eapitil to invest their money in long term investments. This can best be done by raising the long-term investment interest rate. Here, however, there is some natural hesitancy to be expected from the Reserve Bank because until the full results of the Havana Trade Conference are made known it will not be possible to foresee likely developments within New Zealand. As soon as the achievements of the Havana Conference have been examined it will be possible to take a further step in managing the money market of New Zealand.