The Evening Star FRIDAY, JUNE 15, 1934. BANKING IN NEW ZEALAND.

Evening Star, Issue 21747, 15 June 1934, Page 8

The Evening Star FRIDAY, JUNE 15, 1934. BANKING IN NEW ZEALAND.

Sir Harold Beauchamp is once again chairman of directors of the Bank of New Zealand, and the speech he delivered at to-day’s annual meeting will be the last having the peculiar significance attaching to it in the past—ever since, in fact, the Government came to this bank’s assistance in a crisis and became the biggest shareholder. The Government remains a shareholder in the bank; but, as from August 1, the. Government’s account will be transferred from it to .the Reserve Bank of New Zealand. The directorate of the premier trading bank in this dominion has not altered its view as to the Reserve Bank being established unnecessarily, or at least before its time, but Sir Harold promises his bank’s cooperation “in every possible way to serve the interests ,of the dominion.” Loss of the Government’s account is not expected to materially affect the bank’s earning power, but profits will be materially affected by the transfer of about £7,000,000 of the bank’s funds into non-interest bearing assets. This is because of the obligation of the trading banks to maintain at the Reserve Bank balances based on the amounts of the money on deposit with them. Four-fifths of the amount mentioned, however, will be derived from the redemption of Treasury bills by the Government through the Reserve Bank. In effect, the Government’s indebtedness to the trading banks represented by this “ paper ” will be transferred to the Reserve Bank. The other fifth of the transfer will be in the form of gold held hitherto as a cover for a note issue which, however, has latterly been inconvertible, and which is presently to become non-existent. On this particular transaction the Bank of New Zealand stands to lose about £BOO,OOO, if, as the chairman says, the Government —not the Reserve Bank, for the money goes direct to the Treasury—is taking over the gold at “practically half its market value.” Sir Harold Beauchamp does not enlarge on the injustice of this «s some outside critics have done, not only in New Zealand, but in England and Australia; but, reading between the lines, it is evident that time has not softened the feeling of fair play and common sense being outraged by the overwhelming decision (56 votes to 5) by which Parliament ratified the Government’s arbitrary valuation of the banks’ gold assets.

Exceptional interest will attach to the bank chairman’s pronouncements on the exchange question. As the time for the opening of the Reserve Bank’s doors draws nearer, the question uppermost in most people’s minds is whether the Government or the Reserve Bank management will have the preponderating say in fixing the rate of exchange. Presumably it will be a matter for consultation between the two, and ostensibly the decision will bo the bank’s. This view is fortified by Sir Harold Beauchamp’s statement under this head to-day. He said: “ The Reserve Bank will commence business on Ist August, and as the determining of exchange rates is one of its functions the continuance or otherwise of the present rate will be one of the difficult problems it will have to solve.” It is easy to discern Sir Harold’s own view as to the arbitrary pegging at per cent. His view and the banks’ view

has not changed sine© 1932. The alteration was not warranted when it was made, and the trade position still less warrants its maintenance now. In fact, Sir Harold says the trade position and the accumulation of London funds “ would in the ordinary course call for a rate not worse than par.” That is to say, the New Zealand pound deserves to rank equal with the English pound, but our rulers decree that it is only worth sixteen shillings of English money. The belief in the exchange rate having some connection with the trading position, says Sir Harold with some sarcasm, though apparently old fashioned, persists despite Ministerial assurances to the contrary. Enforced defiance of economic law has had, among various results, the effect of restricting import trade and diverting New Zealand purchases from England to Australia, with some natural tendency on Britain’s part to impose quotas on our exports to her. Such a restriction would automatically limit our powers to provide for overseas debt services and buy necessary goods abroad. The overseas debt has been largely incurred for the development of our ability to produce for a market always open to receive as much as we care to send.

Now, under changing conditions, it is not surprising that the chairman of the Bank of New Zealand advises the calling of a halt to take stock of our position and revision of our long accepted policy of encouraging the settlement of people on the land. These remarks were made during the chairman’s review of the dairying industry. He is not pessimistic as to its ultimate future, but it is evident that in the meantime he is by no means displeased over a probable decline in New Zealand’s dairying output next season of between 20,000 and 30,000 tons. Very refreshing (though probably not very palatable to some of those prominent in the counsels of the industry) is the chairman’s reliance on dairy farmers themselves working out their own salvation, not neglecting the quality of their produce, rather than on “ planned economics,” which Sir Harold considers a fancy name for putting the industry in a strait jacket. Britain, as the chairman stated towards the close of his address, is showing all the indications of a steady, natural recovery by close adherence to well-tried methods; she has relied on business methods, ethics, and comifton sense rather than on Professors of Economics and “ Brain Trusts.”