BANK OF NEW ZEALAND AND COLONIAL GOVERNMENT.

7

B.—No. 13.

4. In view of all the circumstances, I now propose that the Bank should undertake to make the payments as they will be required, according to a Schedule to be furnished by the Treasury, on the Government paying the several sums to the Bank in Wellington three months before the date of payment in London, that is to say, that for a sum due in London on the 15th April, the money shall be paid to the Bank in Wellington on the 15th January. I have to request the favour of an early reply. 1 have, &c, The Manager, Bank of New Zealand, Wellington. E. W. Staffoed.

H. Mr. T. M. Stewaet to the Hon. the Colonial Teeasueeb. Sic,— Bank of New Zealand, Wellington, 16th December, 1868. I have the honor to acknowledge the receipt of your letter of the sth instant, intimating tho alteration in the payments to be made in London on account of interest and sinking fund on the consolidated loans of the Colony, and proposing a modification of the terms on which the Bank shall in future transmit the money for these purposes to the Crown Agents. 2. Under our present agreement, the Bank makes these remittances by sixty days' drafts, at a uniform rate throughout the year of per cent, premium. Your proposal, that we should undertake to make these payments " on the Government paying to the Bank in Wellington the several sums three months before they fall due in London," is equivalent to a request for a reduction of _- per cent, in the rate of premium; for by this arrangement the Government would retain the use of the money for a month longer, and the Bank would have to pays' per cent, on the amount iv interest during that time. 3. A slight consideration of the cost to the Bank of providing cover for so large an amount, would show that such an arrangement must be the reverse of profitable. The payments are of such a magnitude that, in order to meet them, recourse must frequently be had to the Australian market for British exchange ; and when it is considered that the rate ruling there at the present time (the most favourable in the course of the year) is i per cent, premium for sixty days' drafts, I trust it may be evident that the Bank has dealt liberally with the Government in undertaking so large a transaction at what must be regarded as the minimum rate in Australia. Exceptional cases arise, doubtless, where exchauge can be had on lower terms; but lam satisfied that our existing arrangement will bear a favourable contrast with that subsisting between the Governments of the neighbouring Colonies and their bankers, although the facilities available there for operations of this nature on the London market are so much greater than New Zealand can present. 4. I do not for a moment overlook tho considerations to which you draw my attention in your paragraph No. 3. It is a source of much satisfaction to the Directors of the Bank that the Government Account is in so healthy a condition. For some years past they had to contemplate, not without anxiety, a very different state of affairs ; and since, during that period, they had never taken advantage of the necessities of the Government, they now trust to be met in the same liberal spirit, so long as the terms they offer are reasonable and not inconsistent with advantage to the interests of both the Colony and the Bank. 5. Since the Government desire, therefore, to make their remittances thirty days later than under existing arrangements, the Bank will undertake to do so at a premium of f per cent., which virtually amounts to i per cent, premium at sixty days' sight. As the Government will have the use of the money for one month longer than formerly, they will gain in interest the additional charge of i per cent, on the shorter term, and I may add that if at any time it may be an object to pay the interest in Wellington within sixty days of the due date in London, the Bank would agree to the wishes of the Government in this respect, in consideration of a proportionate increase in the premium. I need not point out to you that this concession involves a great deal more than appears at first sight. The arrangements of the Bank to pay the interest must be made some time prior to the payment of the amount in Wellington, and the credit of the Colony would be protected from any injury that might arise through interruption in the course of post to London, or any other contingency which might interfere with the due transmission of funds. 6. In conjunction with this proposal, I would state that, should the Government require to make a further issue of Treasury Bills under the Act of 1868, the Bank would be prepared to modify the terms on which they purchased the last issue of £12,000 (twelve thousand pounds) from 4fd.to 4d. per cent, per diem, being a reduction of 1 per cent. ; that is to say, we would take up the balance of the sum authorized by the Act at par if issued to bear interest at 6 per cent. 7. As a loan of this character is purely of a temporary nature, the bills are marketable only to a limited extent in the Colony, on account of their limited duration. They therefore stand on a different footing to debentures of a longer currency ; and, looking at the quotations of New Zealand Consols in London, where money is so immeasurably cheaper at present than in the colonies, I trust you will recognize, in this offer from the Bank, the evidence of our desire to transact the business of the Government on the most equitable terms. I have, Ac, The Hon. the Colonial Treasurer, T. M. Stewaet, Wellington. Manager.

I. The Hon. E. W. Staffoed to Mr. T. M. Stewaet. Sic, — Treasury, AVellington, 19th December, 1868. I have the honor to acknowledge your letter of 16th instant, stating the terms on which, the Bank will undertake to place funds in London for the payment of interest and sinking fund on account of the Government.