THE CONTROL OF GOLD RESERVES

Hokitika Guardian, 18 December 1929, Page 7

THE CONTROL OF GOLD RESERVES

(Otago Daily Times.) It was to be anticipated that the Commonwealth Bank Bill introduced by the Labour Government in Australia would meet with considerable criticism in tho Senate, in which Chamber the Government is in a distinct, minority, and it will be seen this morning that the Senate has amended the Bill in a somewhat important respect. This measure for the control of gold reserve represents a new departure, and, though it may not as yet mean interference by politicians with banking policy is no doubt viewed with a good deal of suspicion as likely to lead in that direction, 'file Bill proposes to give authority to tho Commonwealth Bank to require returns to be made by any individual or institution that may hold gold and to requisition either the whole or part of such gold. It also proposes that, acting upon the advice of the bank authorities, the Federal Treasurer may withhold authority to export gold. Mr Theodore said, in introducing the measure, that the matter was urgent because of the exchange position, and because of the attack that was being made on the gold reserve of the Commonwealth Bank. Individuals and institutions found it cheaper to export gold themselves, and at present the Commonwealth Bank had no power to refuse gold, and the authorities were apprehensive of what might- happen if the demands for it continued. It was not distinctly known, dec-1 a.red (Mr Theodore, how much gold was held in private banks and by other institutions, but it was (believed to be approximately fortvfonr millions. He claimed that the Bill would strengthen the Commonwealth Bank enormously and would give facilities for dealing with the foreign exchange position. The Federal Treasurer added that a proposal for the control of the exchange rates, of which there had been rumour, had never been contemplated. Objections to the provisions of the Bill have been numerous. The Melbourne Chamber of Commerce has protested that- the mobilisation of tlm gold reserves of the trading bank's is -neither necessary nor desirable in Australian conditions, and that a change so radical would not only tend generally to liampm- banking (business, but might be injurious to the credit of the Commonwealth and the States, besides disturbing ’public confidence. The

Chamber has also expressed the earnest hope that if any gold is demanded from the banks under the amended Act it will not be used for purposes of note inflation, in a speech in the Federal House of Representatives last week Dr Earle Page, the former Treasurer, expressed the view that the danger of an embargo on the export of gold lay in the fact that it might be made the basis of a tremendous inflation of the note issue, as had beqn suggested by a number of the Labour members.

Under the heading “A Politically Controlled Currency,” the Sydney Morning Herald argues; “Mr Theodore has based his Bi 11 in part on the representations of the directors of the Commonwealth Bank that the exchange situation is like a ship on an uneven keel, and that every means must be taken to restore the balance. The unevenness is the result of a reduction in tho return of our exports coinciding with an inability to secure external loan money. The means proposed by the Bill, if they do restore the balance, will do so by abandoning tho gold standard. So we shall proclaim to the world that we pay for the goods that we have contractor for not on due date, but on a date which suits the convenience of the Commonwealth, and that, as to any future purchases, those may be made not as the common people of the Commonwealth desire, but as the Treasurer of the Commonwealth shall determine. He lias taken power to be the arbiter of the import trade of the Commonwealth.” It is conceded that any course involving even a temporary departure from the operation of the gold standard will adversely affect the credit of the Commonwealth overseas, yet the Bank Bill, says the Sydney Morning Herald, by giving the Treasurer power to prohibit any individual exporting gold, gives the Treagurci power to withdraw the gold standard from Australia. In its comments on the Government proposals tlie Melbourne Argus is moderately critical. It suggests that, as long as a Commonwealth Bank Board of the present type is in command and the Federal Treasurer follows the Board’s advice, the administration of the amended Act may be expected to proceed on sound lines. But it is conceivable, it points out, that the peisonnel of the Board may in time he radically changed, and . important changes of policy may be embai ked upon, and this marks the difference between the position in Austialia and that in most other countries in which the gold reserves have been placed under the control of a central institution.

The whole of the directorate of the Board in Australia is subject to appointment by the Ministry, and the Board may therefore become the plaything of politics. The commercial banks are naturally diffident in entrusting such wide powers to a Ministry whose policy is by tlO means clear. The amended legislation makep no provision for the control of exchanges. “As long as the commercial banks held substantial gold reserves,” says the Argus, “and had the right to export, they could use gold as a last resort to replenish their funds in London. The. new Act takes away this right, except in so far as it may he granted by the Commonwealth' Bank, but no responsibility is placed on the Commonwealth Bank to provide the necessary exchange on London in a period of difficulty.”