THE EFFLUX OF GOLD

Evening Post, Volume CXIV, Issue 89, 12 October 1932, Page 6

THE EFFLUX OF GOLD

Sir,—Your Financial; Editoir needed; no apology tothe experts for the ■explanatory article in last Saturday's "Post" :on the Central Banking System., It is just .about as much as those who operate the-system in different parts of the World ever let the public know. There is a'matter exercising the minds of those who take an intelligent interest in the financial affairs of the Dominion that appears inexplicable by the trading position—the recent rapid efflux of gold. The position given in the combined banks' statements at 31st December, 1931, was as follows:—Notes on issue, -£5,926,902; coined gold and other coined metals, £6,557,55 i. '. Though the official figures are not yet available, an advance statement of the quarter ending September, 1932, appearing in your paper makes the position as follows:—Notes issued, £5.010,825; coin and bullion. £3,803.426. This 7-cmarkable change in llie metal backing o£ pur cur-

rency calls for some explanation from the Minister of Finance, without whose permission -under existing law gold cannot be exported from the country. It is not. to be justified by the position of the trade, balance, for our exports exceeded our imports, by £12,000,000 for the past year, and this is £6,000,000 more than required to meet the Governmental interest liability overseas. . '. : . ': .

It should be remembered that the note issues o£ banks trading/In-Nev? Zealand are State-guaranteed until 1934, except in the case of the establishment of a Central Bank, in which event the guarantee may be withdrawn,.-'and-"(presumably) transferred to the Qentral Bank. ' Few people are aware of the enormous responsibility' undertaken by the Government, of this Dominion for the liability of the banks. Perhaps it will'be enlightening to not aTew of your readers to learn that under existing law if any bank using State-guaranteed notes, and all the banks do, fails to pay in gold its obligations in notes within six-months of-1 the withdrawal of-the State guarantee, then the Treasury has to find the gold to do so; .; ',"■■' :,Gold is still the ■ international 'medium of exchange, and the polite talk-of being "off the gold standard" and' "default" is just the distinction between1 the commercial terms "composition with creditors" and "bankruptcy.^'' The rapid efflux of gold at the present juncture calls for an immediate explanation from the Minister of' Finance, without whose authority it could not have been exported. The increasing rapidity of the/ movement coincident with the imminent establishment of a Central Bank, which would safeguard the Treasury's responsibilities by taking the gold over, also calls for much explanation to students of finance. Prima facie it looks like exporting ammunition from a country militarily threatened.—l am, etc., A.D.R. 10th October. [The notes are a first charge on the assets of tiie banks. The Government having prohibited the banks from exporting gold in the ordinary course of their business no doubt felt that it could guarantee the notes in consequence. -This was a war measure and dated sth August. 1914. The recognised gold backing to notes is 25per cent., and this is considered ample: but the New : Zealand backing is almost £1.. for £1. The Australian Commonwealth Banks Act provided that the Commonwealth Bsink shall hold in gold coin and bullion a reserve of an amount of hot Jess™'than, one-fourth of the Australian •notes issued. Subsequently this provision was reduced .to 15 per cent, to 30th June. 1933, to 18% per cent, to '30th"June, 1934', and to 21 per cent..to 30th JJune,' 1935. Later the words "coin and, bullion" were omjtted'from the section o£ the Act'and the'words "or in English sterling or partly in gold .and partly in English sterling" were inserted.] .■,■■■■■;-..:'-" '■'.';