THE RESERVE BANK

Evening Post, Volume CXVI, Issue 104, 30 October 1933, Page 8

THE RESERVE BANK

(To the Editor.) . Sir, —It is surprising how indefinite Mr. Coates is in regard to the constitution and working of the Reserve Bank, the foundation of which is being widely discussed at the present time. Apparently the United States of America was the first country to put the proposal into actual working in the year 1913. The grounds given for the Reserve Banks were:— 1. Lack of concentration of banking reserves. 2. Want of elasticity in the system of note issue. 3. Absence of proper facilities for expanding credit in periods of pressure. In U.S.A. these banks were located at twelve chosen centres throughout the country. The management at each centre is vested in a board of nine^—three chosen directly from the banks which are members, three from the commercial, agricultural, and industrial interests. The remaining three are appointed by the Federal Reserve Board. One of the latter it appointed chairman, and he has custody of the securities held for the note issue. At the head oZ the system is the Federal Reserve Board of seven members, two of whom, the Secretary of the Treasury, and the Controller of the Currency, serve ex officio." Federal Reserve Banks receive deposits from member banks only, and from the Federal Government, thus becoming the bankers' banks. They do not compete with other banks for deposits of individuals or corporations, but may buy bills of exchange on the open market. They determine the general policy and the regulation of member banks. The board is required:— . 1. To issue an individual statement of the position of each Federal Reserve Bank weekly, and also a consolidated statement of the position of all such Reserve Banks. 2. To permit Federal Reserve Banks to rediscount the discounted paper of other Federal Reserve Banks at certain fixed discount rates. 3. To supervise the note issue. Tho capital is provided by a subscription by each national bank of an amount equal to 6 per cent, of its combined capital and surplus. A powerful factor of. this plan is the facility afforded for the issue of notes by the re-discounting of paper by any member bank. The Federal Reserve Bank notes are obligations of the1 United States, and are receivable by all national and member banks, and Federal Reserve Banks. The notes are also accepted for all taxes, Customs, and public dues. From the above it will be seen that the other trading banks are shareholders in and are supporters of the Reserve Banks, and are represented on. the board. There is no political control, and this is guarded against by the constitution as laid down. It is quite evident that Mr. Coates's proposals are not in agreement with the above system to any extent whatever. It has, however, to be remembered that in the last two years some thousands of trading banks have had to close their doors in U.S.A., even although an elaborate system of Reserve Banks is in full working order there. So a Reserve Bank is not going to be the panacea for all our troubles financial and political.—l am, etc., CIRCUMSPECT. Dunedin, October 28.