The Guardian And Evening star, with which is incorporated the West Coast Times WEDNESDAY, SEPTEMBER. 16, 1931 A CENTRAL BANK.

Hokitika Guardian, 16 September 1931, Page 4

The Guardian And Evening star, with which is incorporated the West Coast Times WEDNESDAY, SEPTEMBER. 16, 1931 A CENTRAL BANK.

•‘A reserve bank, as recommended by Sir Otto Niemeyer in his report on banking and currency in New Zealand, could be the greatest blessing or the greatest curse that ever happened to tips Dominion,” said Mr G. HartSmith, a retired banker, speaking before the Auckland Chamber of Commerce last week on the subject, “Should New Zealand have a Central Bank?” Mr Smich’s address was devoted to showing how: the opportunity could be turned into a blessing for the community of New Zealand as a whole. Money will always flow in the direction where it can earn the better rate of return,” continued Mr Smith, “and unless we can control this for our own ( purposes we are bound to suffer and to find''ourselves being drained of our resources. It is significant that our position did not become acute until the lime-light was thrown on the very am. favourable balance of trade in Australia. The only way to obtain this control is by the establishment of a central bank. Commenting on Sir Otto Niemeyer’s report, Mr Smith said that weaknesses he pointed out in New Zealand’s present system were that the issue of legal tender currency was in the hands of six banks, which were no longer obliged to keep any gold coin as cover for their notes, and that there was a prohibition on the export of gold except with the approval of the Minister of Finance. Of tho-e six banks, all, with exception of one, were controlled outside the Dominion. They were private banks and would go as far as, they dared to suit their private interests. However, not all the blame <•oulcj.be placed on the banks, as it was more often the big customers, or large shareholders, who used the resources of the banks .for their own interests at the expense, of the community. That was a grave position, for any country to Ik> in and the necessity for some radical change was great. He urged the chambers of commerce to unite and see that the machinery set- up. bv the export called in was manned and controlled for the purpose for which it was intended, namely, for the service of the community as a whole, and was in every sense free of any influence other than economic. Mr Smith quoted part of the report as follows:

“But 'the recommendation to .tettiblisli a reserve bank is subject to two fundamental conditions. In the first place, the bank must be entirely free from both the fact and fear of political influence. If that cannot be obtained its existence will do more harm than good, for, while a central bank must serve the community, it cannot carry out its difficult technical functions and cannot hope to form a connecting link with the other central banks or the world, if it is subject to political pressure or to influence other than economic.” The remainder of the report, said Mr Smith,, was drawn up on the lines of procedure customary for central banks, the chief modification, in the case of New Zealand, being the absence of a money market or a short-loan market. The final point of importance was that with the establishment of a reserve bank, the existing prohibition on the export of gold would be withdrawn. As the discovery of fresh gold was not keeping pace with its demand for industrial development, the necessity for conserving it was imperative, and thus bad evolved the creation of the central bank system.