RAPID GROWTH OF NOTE ISSUE

Dominion, Volume 37, Issue 229, 24 June 1944, Page 6

RAPID GROWTH OF NOTE ISSUE

Innocent And Dishonest Hoarders IMPLICATIONS ANALYSED "There is one important feature of our war finance to which I should refer, and that is the growth of the note issue of the Reserve Bai>k,” said Mr. A. T. Donnelly. chairman of the Bank of New Zealand, in his address at the annual meeting in Wellington yesterday.

"This growth is common to ihe finance of most of the Allied Nations. The Dominion note issue began to expand before the war. but the rate of increase has accelerated in the last five years. Since 1939 the notes held by the public as at the last Monday in May of eaci year, excluding the till money of th? trading banks were as follows. 1939. £ll.l 000 ; 1910 £13,757,000; 1941. £16,927,000; 1942. £20.311,000; 1943. £27.033,000. At the last Monday in March this year the amount was £31,196.000. “When these figures are analysed into the denominations of the notes on issue, some important facts become plain.” continued Mr. Donnelly. "Comparing the figures for 1939 with those lor March, 1944, we And that of the total increase of £20,056,000, £15,675,000 is represented by increased issues of the larger denomination notes. £5, £lO, and £uo, the figures being as follows —you will see that the higher the denomination the higher is the rate of increase:—March, 193 J : lu/-» £571,000 ; £1 £4.396.000; £5, £5,404,000; £lO —; £5O. £768,000. March. 1944: 10/-, £952,000; £l, £8,021,000; £5, £16.422,000; £lO, £2,791,000; £ao, £2,634.000. Demand for Currency. "There is an increased demand for currency to pay higher wages and higher prices. The larger notes, specially tlo and £5O. are rarely used in daily business and must therefore be hoarded by people who prefer the cash to a bank deposit. The notes are belli by all classes and for different reasons. There are innocent hoarders, people of simplicity and inexperience who keep their notes in risky places such as the garden or the teapot on the mantelpiece Their nuirber is substantial and by disaster some of them have lost the hidden notes, perhaps their lifetime savings. There are olher hoarders who hold their notes for dishonest purposes, to avoid death. or gift duties or income, national security, or ether taxes. These people'have stripped the market of office safes, deed boxes, and ether likely containers. “Hoarded notes may themselves be the proceeds of illegal trading in price-fixed or rationed goods, of which spirits ana petrol may be cited as examp.es. These notes dribble back into -circulation in many ways, in payment of debts, betting on and off the course, purchase of properties, bearer securities, raceh arses, and luxury goods like furniture and antiques for which two to ten times the real value has been naid in auction-rooms all over the country during the last year. Note hoarders who are tax dodgers can attorn to pay almost any price for anything because they have so great a start over the people who pay their taxes. “In dealing with the same problem the National City Bank of New York in its Bulletin of February. 1944. made the following remarks:—‘ln addition to heavy legitimate uses, there is evidence of crowing demands for currency from biacK market” operators who are reported to deal in many different articles at prices above the O.P.A. ceilings, and who naturally try to avoid bank records of their dealings. At the same time, some of the merchants doing an extensive business in used automobiles, furniture, antiques, old jewellery, etc., are reputed to deal strictly on a cash basis in both buying and selling with only a minimum of bookkeeping records, in order to eyaf« taxation. In fact, the extremely high income tax rates now prevailing afford to large lumbers of people a high premium on/yiiding taxes on any income not reported to the Treasurv at the source. With the lowering of income tax exemptions, many people not having bank accounts have adopted the practice of storing up currency for the payment of their taxes. Moreover, many people have misunderstood the frequent proposals for “forced savings ’ (of a portion of income, through taxes .and postwar refunds) to mean'confiscat ion of savings accounts. It may be that tax evasion and black market operations have become more important influences m money supply than had been realizeci. In that case the tax programme, instead of concentrating still heavier burdens unon present taxpayers, might intensify efforts to reach large income which is appar nt y evading taxes. Some of this money might be reached through more rigid tax enforcement. and some might be reached through sales or excise taxes that would apply when such money was spent. Destructive to Morale. “In rimes of strain, the weakest part and the weakest people break first, and New Zealand is as free from dishonest note hearing as any other country, continued Mr. Donnelly. “However there is no reason why we should not be better than we are. and there is every reason why we should not become any worse. There is nothing so destructive to that essential wartime quality vaguely called ‘morale’ than the knowledge or fear that ‘pointers’ can, get the best of it. “As goods grow scarcer and taxes higher, dishonest note hoarders become bolder, and there are more of them to enter into squalid competition with one another. Note hoarding, like a nw , in temperature or an eruption on the. skin, is a symptom that our socal body is not in sound financial health. Some of these people justify themselves to such consciences as they have by the assertion that it does not pay them to be honest. Like Falstaff, they hide their honour m their necessity and say that high taxes and low interest leave them with no motive or inducement to do as others do. A burglar c-'-ght with the goods on him may as well say that he wants the money. Note hoarding of all kinds tray be reduced. or its growth arrested, by Government. radio and newspaper publicity with clear explanations to the innocent and the ignorant. Dishonest people can be discouraged or disappointed if cash settlements are refused in transactions where cheques are the normal rule, though cheques themselves are sometimes passed from hand to hand to avoid inclusion in usual accounts. • “No one with any knowledge, or even suspicion, should aid or abet in any way these crooked deals. The note hoarder should be left with his currency useless in his hands. During a war dishonest note hoarding is a crime against the State and the great mass of cood citizens who work and fight to save the State. The law of the land should make it what it is.” -