State Note Issue.

Horowhenua Chronicle, 15 July 1910, Page 3

State Note Issue.

(Tim "M"orc<:iivtili? Gazette.) The Labour Government now controlling till* dest'lllle.s of lite C 0111111011wealtli has deuidcd upon a Statu Notti Issue, and it is probable that before these lines appear in print, tlie Hill embodying the ,proposals will bo before the Australian public.. Tho Prime Minister of the Commonwealth declared a State .Note Issue to be one of the planks of the Labour Party, and since that Party has come into power the subject Has been freely discussed in the Australian Press. There is nothing to prevent a Slate Note Issue ibeing an absolute success -it all depends upon the safeguards that surround the issue. Government note issues work soundly enough in the United States, in Canada. in India, and in Queensland. It works badTy in some of the South American Republic for obvious reasons. New South Wales also started, a. note issue but returned it. The Queensland note has never paid the Skite moro than the old note-tax did. .Many people have a perfect craze for meddling in banking questions, and particularly the currency question, and this craze it must be admitted, is not the outcome of an inherent desire to do t.h-o wrong thing. A State Note Issue is practicable if adequately safeguarded. A note is a promise to pay {{old--it i-s a debt, it is a liability. If the State holds in gold 20s in. the £ against' such a, liability anote issue is qmite feasible, bu,b in that case there would be no benefit. liut the Commomwealth Government does not propose to hold 20s "in the C, but os in the C. This is on the basis of the present note circulation of the Commonwealth Government would divolve its keeping C 1,000.000 in reserve in <j;olrI. The question immediately arises where is this gold reserve to be kept;' In Sydney or .Melbourne In time of stress, and that is only when a. gold reserve is seriously needed - the note holders in tin- city where the reserve is kept would have a very high advantage over those in other places. They would be able to cash their notes long before the notes from other centres could be presented. A good deal of misconception exist."* with respect to bank notes and their lunctions. A bank note as we have already staled is a promise to pay the. lace value of the note in gold on demand. Tt is a. liability. Against the Commonwealth note issue the hanks there hold CO or £7 in coin I'd revery pound note in circulation. in Now Zealand according to the last quraterly banking; averages the proportion is C'.'S .'ls for every

pound nolo. There is ample security I'or the circulation and the State <"i 1111 ot provide ;tnybluiti <r better, if as good. ft may lio a«ked and rightly so. il tlie bank must hold actual n against everv note issued, why issue notes .at all. ff the Hanks ill Australasia eacli possessed hut one oftice,there would be no ga<in in a note issue and probably none of thein would issue paper, but n bank u'itli branches finds it economical to issue notes. If cold reserves were In be held nt each' branch it would bo wry costly. A sate full of coin is expensive. A .safe full of notes costs next to nothing until the iiiihlic take tlieui, and then only must gold be held lor them a.t tlio head office, llie note is a conveu ; ienee to tliebanks, an <lthey pay a tax for tlicconvenience. A bank's business is to he hot,h the debtor and the creditor of the public, and so long as its credit side is the greater, its position is solvent, and so long as it.-, assnts are sufficiently reliable, 'ts position is sound. Ol course the Government Ims an interest in tlie currency, .and that i.ntei'cjt is restricted to protecting the public. It is the. dutv of the Slate to see that the coin, is of the weight and pinity fixed by law. The State does not provide the gold, hint coins it for the public, and makes n fixed chargo to cover exMiensrs. Hank notes- being promises to pav gold on demand and gold is its nii'e reliable and sound securitv. ft is tin* duty of the State to see that the, geld coin is available to meet the bank notes. The Government is Pi'rle.-tly justified in stipulating ;hat no bank shall issue notes beyond the gold it holds, || may go further ! stipulate that siie.h gold coin covering the bank note issue shall be depc.sited in the Treasury, but in that case its 'position would he that ol a trustee holding the coin, as cover Iter the notes. A Government siinuld not, (t ]|i;is . t|) _ solutely nothing to gain if it issue notes and holds £ for C in crold, and iiiiy other security than gold 'must be inferior. If it issues notes and does not provide ,a full ( . OVOI . j n liU'tiu it- runs into debt and could in this way pile up debt without the control ot Parlia.men'.t. lint th<3 snfe sound system of note issue, that is providing a gold reserve -of C for £ of the note issue, is riot what the advocates of Static not-is.sue desire. I hey picture a nofco issue as a means of providing capital without interest tor the carrying out of permanent. works. In other words they expect to get sonic-!hing lor nothing. 1 hat is a delusion of the worst character, 'hut it is firmly held bv a. good many people. Wo do not' IVm one moment believe tha.t thesu advocates of a State note issue will accept the statements .and convictions of economists and statesmen, nevertheless the following are worth recording:— Daniel Webster says: Tlio disordered is.sue ot the American currency caused more prostration of commerce than the war did. Paper money should be regulated by the demands of business, and not. by the needs of the Government, and should bo subject- to coin redemption." President Garfield says: "No Government can safely undertake to supply its peoplo with a paper of currency issued directly by the Government, because no human legislature can determine how much currency the wants of .a country require, and because a State note issue dors not possess the power of adapting itself to the 'business of a country." Professor Baniamy Price says: "A Government is a 'had direct issuer of paper currency, and every nation would do well not to 'fall into such a snare. It fails on the capital point of .providing thoroughly trustworthy security for conventiibility."