Are Deposits Savings?

Dominion, Volume 28, Issue 108, 31 January 1935, Page 11

Are Deposits Savings?

Sir, —Mr. Miller says that his previous letter only referred to deposits in current accounts at the banks. He admits that fixed deposits often represent savings, thus our point is conceded. We do not for one moment argue that deposits to current account are savings to any great extent. From his letter there seems to be some confusion in Mr. Miller’s mind. He asks if this league "is quite sure that one has to place money on fixed deposit to open an account?” Surely an absurd question to ask. Of course no one opens a current account with a fixed deposit. Mr. Miller asks what Mr. McKenna meant when he said "every bank purchase of securities creates a deposit and every repayment of a bank loan and every bank sale destroys one.” The meaning is perfectly clear. If the Bank of New Zealand purchases £l6OO worth of securities, its cheque is paid to the vendor and in due course is paid by him to the credit of his account in his bank. Thus the purchase of the £lOOO of securities has created a deposit in tile vendor’s bank. When a bank sells those securities the purchaser draws a cheque and thus reduces his deposit. In the same way, a bank loan creates deposits. In the ordinary course the borrower draws cheques in order to pay other persons, who in turn pay the money received into their banks, thus creating deposits. In this way bank loans naturally create deposits somewhere within tiie banking system. Mr. McKenna’s dictum obviously applied to the banking system as a whole. These transactions balance one another. Mr. Miller asks how deposits can in this sense be savings. They may not always be savings, but Mr. Miller is in error when he says they never are. Suppose A has saved £lOOO and invested it in 3} p.c. Inscribed Stock. He finds a more profitable investment, sells the stock to his bank and invests the proceeds again. During these transactions the money passes through Certain banks as a deposit, but the £lOOO is still A’s savings. We feci that Mr. Miller, is labouring under the wrong impression that banking transactions in loans, etc., create all deposits, whereas they only do so in connection with the particular transaction. Facts and figures prove conclusively that commercial banks hold less than half the deposits in New Zealand. It is no reply for Mr. Miller to say that “statistics can show anything,” nor is it any answer to say that half those who own these deposits are tenants on sutfrance as they are secured dients of mercantile firms. This again shows confusion of thought because savings banks depositors are not. secured clients of mercantile firms, nor does one become a secured client of a firm if one deposits a sum of money with that firm at 4 per cent, inWe regret that Mr. Miller labels all opinions which differ from his as “dope.” If a bank does not use the money deposited with it, can Mr. Miller suggest why it pays interest upon the amount? Of course the banks, Tike nny other firm or business, use the deposits, otherwise .they would not offer to pay for them. — We are, etc.. N.Z. WELFARE LEAGUE. Wellington, January 30.