CORRESPONDENCE WITH REFERENCE TO PLACING PROCEEDS OF LOAN WITH THE BANK OF NEW ZEALAND.

Globe, Volume IV, Issue 348, 24 July 1875, Page 3

CORRESPONDENCE WITH REFERENCE TO PLACING PROCEEDS OF LOAN WITH THE BANK OF NEW ZEALAND.

[By Telegraph.] (From a correspondent of the Press.") Wellington, July 23. Sir Julius Vogel, on the 16th of March, wrote to the manager of the Bank of New Zealand to say that the largeness of the amount of the loan lately deposited, together with the fact that a considerable sum would probably be kept with the Bank for more than the usual temporary period, led Sir Julius to hope that the manager would see his way to offering more favorable terms for deposit than hitherto given. In reply, the manager wrote offering three propositions, the third being that the bank would allow the Government J per cent instead of 1 per cent below the Bank rate for the time being on £1,500,000, to be fixed in equal sums for six and twelve months respectively, and the balance should remain subject to present arrangement at 1 per cent under the bank rate, rising and falling therewith, subject to withdrawal to meet the financial requirements of the Government, of which a reasonable notice was to be given. In July, Vogel replied :—" The third proposition I will entertain if you so modify it as to make it apply to all Government balances of the loan in your hands during the year ending, say sth April, 1876. I cannot undertake positively to fix in your bank £1,500,000 for six and twelve mouths, as proposed, but the proceeds of the loan will only be withdrawn by you to meet the pur poses for which the loan is applicable, and your average balance during the ensuing year will certainly be not less than that which your letter points to, namely, £1,500,000, during the first six months." This modification was agreed to by the Bank authorities.

The loan agents wrote to Sir Julius ogel on the 20th of April—"ln consequence of the purchasers of the loan having paid up under discount, the instalments in anticipation of the due date, the amount at present standing to the credit of the New Zealand public account at the Bank of New Zealand is £2,228,482. We have anxiously considered the propriety of keeping so large an amount at any one bank, and by way of precaution propose acting under the powers vested in us by the Governor's warrant of the 18th of January, 1873, to divide the amount by placing portions of it on deposit with some of the large joint-stock banks, such as the London and Westminster and London JointStock. Before doing so, we desire Io take advantage of your presence in this country, by requesting you to inform us whether you see any objection to the course proposed."

To this Sir Julius replied, on April 29th : " I have to say that the warrant and letter accompanying it were meaDt to give you power to remove the Government funds deposited with the Bank of New Zealand, in case you were of opinion the bank was getting into difficulties, and the documents were not intended to be otherwise acted upon. The Government are under agreement with the New Zealand bank, and six months' notice is necessary in order to end it. At the same time there are frequent negotiations for a modification of the terms of the agreement. In 1872, you addressed the Government upon the question of keeping such large balances with the Bank of New Zealand, and the reply was you might be at liberty to invest some portion of the Government funds in exchequer bills, if thought desirable to do so, but the balance was to be kept at the Bank of New Zealand. Subsequently legislation took place, with the view of enabling the representatives of the colony in England to take action, in case of a difficulty arising. So little, however, did I contemplate the present n& C3sity of the balances, or any portion of them, from the Bank of New Zealand, that, as Colonial Treasurer, I lately negotiated with the bank for increasing the rate of interest, and it was only after I had informed the Agent-General of the result of the negotiations—namely, a concession of % per cent that I was informed you proposed to disturb the balances. You now ask my opinion—l reply—lf you were to adopt the course proposed you would upset the arrangement which, as Colonial Treasurer, 1 had made. I am quite unaware of any good reason for withdrawing part of the account as proposed by you. The interests of the Bank of New Zealand are intimately bound up with the interests of the colony, and I do not see why we should enter into relations with other Banks. It is true the balance is at present very large, but it will shortly be much reduced. In the colony it will be largely drawn against, and bills purchased by the Bank of New Zealand, so that in reality the Bank will be giving to the Government in the colony a very considerable sum, which nominally remains on deposit with the Bank, and bearing interest here. I do not think, upon the whole, the responsibilities of the

Bank of New Zealand to the Government are in excess of the general responsibilities of the Bank of New South Wales to the Government of New South Wales, and unless you have weighty reasons for doing so, I cannot conceive a course more prejudicial to the interests of (he colony than of throwing discredit upon the principal local Bank. With the view of the question being well considered by the Government, I am willing to take upon myself the responsibility of instructing you not to act as proposed, except upon further instructions from the colony. On this question a case was prepared by Mr Mackrell, and submitted to Mr J. Brown, Q.C., who delivered an opinion to the following effect:—" The Crown agents acted on warrant in appointing the Bank, and are thus freed from the i esponsibility of selection and continuance with it. The only remaining question is that of removing the account, if expedient to do so, from any change in the circumstances affecting the Bank. What the Treasurer has done in England, by a modification or improvement of the arrangement made with the Bank in 1873, the Crown agents must not attempt to disturb, neither are they bound to exercise any discretion of interfering with these arrangements. If they do, after knowing that they had the sanction of the Treasurer, they would be responsible for any loss of interest or damage arising therefrom. All the Crown agents are called upon to do is to write to the Government calling attention to the warrant of January, 1873, and the letter accompanying, to the minute of August, 1874, and to the arrangements by the Treasurer in England with the Bank, and pointing out these arrangements by the Government with the Bank, which will relieve the Crown agents from all responsibility for the continuance of the Government account with the Bank, as well as for the large amount of money in its hands, reminding the Government of the letter of June Btb, 1873, on the occasion of the former loan, and asking instructions as to whether the Crown agents are still to undertake the responsibility of removing the account from the Bank in the event of any emergency arising which may render it expedient to act before the Colonial Government can be communicated with. As there is no pressing danger, nor likely to be for a good while to come, I think nothing more is required than to define the position of the Crown Agents, and free them from responsibility." The rest of the discussion is acrimonious. On May 4th, Sir Julius Vogel advises the Government :—" I felt no uneasiness about allowing £1,500,000 to remain with the Bank. On the contrary, I felt that, looking at the circumstances of the colony, the very high rate of interest there, and the consequent heavy charge for discount, that the colony would benefit by the Bank being enabled to enlarge its colonial resources. I do not doubt that the rates of interest and discount in the colony have already been reduced, or are about to be reduced. The unexpected extent to which deposits on the loan have been paid up, makes the amount in the Bank more than I had anticipated, and I shall endeavor to arrange for investment in exchequer bills of all sums in excess of the one million and a half."