Evening Post. SATURDAY, NOVEMBER 19, 1932. RESPONSIBILITY OF THE BANKS

Evening Post, Volume CXIV, Issue 122, 19 November 1932, Page 12

Evening Post. SATURDAY, NOVEMBER 19, 1932. RESPONSIBILITY OF THE BANKS

A - grave. responsibility rests upon the banks in meeting the revival of the high'exchange agitation. When asked yesterday if die Government had approached the Associated Banks on the subject the Prime Minister replied that it had not. "The first move must come from the banks (he said). The banks accept the responsibility for the finances of the country and they must make the move. It is not for the Government to do so." The Prime Minister's" remark overstates the responsibility of the banks. Under their charters the banks have privileges, but they arc-not so wide [as to warrant full acceptance of "the responsibility for the finances of the country." . Bankers have, for example, only limited and indirect control of expenditure—whether public or; .private. Even in exchange they cannot, except under such a scheme as the export credits pool, control all operations. ' Nevertheless their influence is great and their responsibility is heavy. The Government has a duty to see that in their acceptance orV that responsibility they are not hampered by political pressure. The present agitation is undoubtedlypolitical.. .Strange as it may . seem, it comes, not from the professed advocates- 6f political banking, to whom the Prime Minister in the Budget debate quoted with approval Lord Sriowden's emphatic declaration against political interference with currency and credit; It originates with members of a party traditionally opposed to extreme; Socialistic courses,:and some members of which ns v!?keen, strongest in their opposition to much milder measures of Government interference.

It seems that those politicians who are leading the agitation have given insufficient thought to the precedents which their action may establish. They are seeking to insert a wedge which may in future be driven right home. No temporary benefit to producers or any other single section of the community can compensate for the harm that may be done by this departure from sound principles. The possible harm has been evident in Australia, where the banks, led by the Commonwealth State Bank, were compelled to resist the strongest pressure from a Labour Government. There are certain principles which guide the banks in their control of currency and credit. The chairman of s the Bank of New Zealand enunciated a sound policy in accordance with these principles when he declared:

It is certainly not the business of the banks to adjust exchange rates to meet variations in the price of produce.. Nor can. they be influenced by the rates prevailing in'other countries which are our principal competitors in the London market. . .

Any effort to force the bariks-to reverse these principles . must have most serious consequences. _ The danger is not to be regarded lightly. Hitherto it has been avoided; but if the political agitation grows stronger and the banks by division are weakened; in liieir resistance we may be plunged into political inflation. It is the possibility of a policy of divide, and conquer being applied to break down sound banking methods that has led many far-seeing people to consider seriously the need for an independent reserve bank with unified control of currency. In recommending such a bank Sir Otto Niemeyer most emphatically kid down the'fundamental condition that 'the bank must be entirely free from both actual fact and the fear of political interference." \

If that cannot be secured (he said) its existence will do more harm, than good, for, while a central bank must serve the community, it cannot carry out its difficult technical functions and cannot hope to form, a connecting link with the other central banks of the world if it is subject to political pressure or to influences other than economic. ■.■'.'*

Hitherto there has been no great need to stress the value of absolute dom of banking from political in-' fluence. The good sense of New Zealand Governments and the courage of New Zealand bankers have made the perirseem small—or at-least not so great that a central bank became [essential chiefly as a safeguard (against the danger. But if the present safeguards now prove Insufficient the. public confidence in the existing guarantees of independence will be shaken. -