A CENTRAL BANK

Hokitika Guardian, 14 November 1932, Page 8

A CENTRAL BANK

THE NEW ZEALAND PROPOSAL London comment.

LONDON, November 5.

The writer ot a.special article in the “Financial Times” discusses the proposal'ta, establish a Central Reserve Bank in New Zealand. His view s are evidently put iorward T.fter discussion with those connected with; New Zealand financial matters in London, who emphasise that before the new Central Bank can function properly a slow blidding up process will be necessary.’ N A “prominent authority” expressed stho view that owing to the smallness of the population and the lack of a n ■organised money market in New Zealand—he douoted whether it would ever be possible to organise a money market—there is no urgent need for the' creation 1 of sttchan institution. He a&o emphasised the difficulty which may be experienced--in keeping a (eh-' that Bank independent of political coiltrol- ijind fireb commercial influences. "

The most important functions of any Central Bank are the Control of exchange and the management of currency. These functions, hitherto, have bgen carried out by the local banks in i : manner which 1 ' has created the’ greatest of satisfaction. One of' the' problems facing ar new Central Bank will be in ’-regard, to' 1 the' buying and selling of exchange during, the period wli’en'it is ; riot 1 known'definitely itvhflt the backing of the currency-will be.

Other problems r include* tile' building up 'of the necessarily large balances which will bArequired in 'London, and the taking . over of the gold holdings of tile existing local banks.- In cpnhb'c. ti6n"with this latter problem j the matter of price will have to be considered, as l it is obvious that the. local banks will not hand over their gold stocks, say, on the basia of the present statutory price of the Bank,of Eng'sAd, when they can obtain* a higher level in'the open market: j• • Another • expression' of opinion was that" the 'relation' of ; the Central Bank mtist be a costlj' business to the Cover nment, and raised the question' as to whether the same profits would accrue 'to the - 1 Government ! through' the handling of the’ 'note 1 issue by a Central Bank as accrue t 0 it” Under existing l circumstances. '*• - 1 ''

question of exchange

With- regard to exchange; (says the writer of the article), it-Wiil be recalledi that a Government exchange pool operated during' the first -'six* months of this year,i and exports had -to'bemade under license, but- that*this control was abandoned at the beginning of J i!y ; . At present, -dealing, in- exchange is the monoply of the local banks, the fate being-fixed frdrri time to 1 time. One advantage nf a Central Bank will be closCi* 1 Co-operation, and greater' unanimity in exchange matters by which such l developments as' were seen:- a few months' back- (when. there was .- considerable controversy v over ’ the New Zealand-exchange-' rate) would be avoided.’ .'A

The project will mean a great change to the Structure of banking-in New Zealand, and a vast change inn existing practice] bttt first impressions in London seem to be that while a Gen-' tral Bank maw not bring l greater benefit to New Zealand, it will do no harm provided it is built upon the right lines 1 ' /”/’