COSTLESS CREDIT OUTDONE.

Waikato Times, Volume 116, Issue 19314, 21 July 1934, Page 9

COSTLESS CREDIT OUTDONE.

(To the Editor.) Sir, —As you are aware, I am a convinced believer in the possibility of issuing “costless credit," but after reading 'Professor Murphy’s memorandum, prepared for the New Zealand Importers’ Federation, and the statement issued by the Reserve Bank Board, I have come to the conclusion that modern finance is quite capable of dealing with all our problems without the aid of "costless credit." Of course, I may have misunderstood the whole question, but the following is as it appears to me: The commercial, or trading banks, at the instigation of the New Zealand Government, financed all our export trade since January 21, 1933, and have paid out to the exporter the sterling value of his exports, plus 25 per cent. That is to say that for cacti £IOO sterling received on sale of our exports in London they have paid the exporter £125 in New Zealand currency. At the time this arrangement was made the trading hanks protested that this was too high a price to pay for sterling, and declined to take the responsibility. However, the Government insisted, and agreed to buy all the sterling the banks could not sell. Now, let us suppose that in the 17 months that have elapsed since January 21, 1933, we have sold exports in London to the value of £50,000,000. Then the position would be that the banks have paid out in New Zealand currency £50,000,000 (value of sterling received) plus 25 per cent, exchange, or a total of £02,500,000 New Zealand currency. Of the £50,000,000 sterling received in London they have only been able to sell at the rate paid (£125 for £100) the sum of £20,000,000, and they have £21,000,000 sterling left on their hands. 1 naturally supposed that the position to-day was that the trading banks owned the £2-1,000,000 in London and that the Government owed the banks £0,000,000 New Zealand for the amount paid out over and above the amount of sterling received.

According lo Professor Murphy this is not. the ease. The professor says that Hie payments in New Zealand have been financed by the. issue of Treasury bills, and that the Government owes the trading hanks £30,000,000 New Zealand and the Government owns the £21,000,000 in London. Now Hie Reserve ißank comes into the picture, and we are informed that this bank, with a capital of £1,500,000, will on August t pay the Government £30,000,000 New Zealand, and the Government will pay Hie trading banks Hie £30,000.000 New Zealand they own them, and will hand over the £21,060,000 sterling to the deserve Bank. The Treasury hills will now be handed back to I lie Government and everybody will lie happy. What the trading banks will do with the £30,000,000 New Zealand is left In the imagination. 1 am writing Ibis teller simply In get information, because it seems too good lo be line. Eventually, it seems to me, that glorious nest egg of the Reserve Rank must come out lo New Zealand either in Urn shape of goods or currency, ami liieu what a lime we shall bo aide to have. fif course we might pav off our national debt. We are apparently without any effort, on mir part, accumulating almiil £2o,ooo,mhi sleeting per annum in London, ami we must dn something with it. II has been suggested that we issue currency in New Zealand against Ibis reserve in London, and we certainty might do that this year; hut I am afraid the Hauling hanks would refuse In continue the game iiidedniloly, and that might prove a disturbing factor. I wish some of your correspondents who have a real knowledge of high llnanee would let us know where I have gone wrong, and, if 1 am correct, I would ask them what more do they want— I am, etc , I'll ANK i i 111.1! ELK. .Morrinsvillc, July IP, 1034.