The Guardian And Evening Star, with which is incorporated the West Coast Times THURSDAY, JANUARY 5, 1933. THE RESERVE BANK.

Hokitika Guardian, 5 January 1933, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times THURSDAY, JANUARY 5, 1933. THE RESERVE BANK.

The proposal for the creation of a icserve b.unc for New Zealand, introduced in tne last hours of the last session termed the subject of a reference thereto by a writer recently w. o i'.oneeded to stare that there aie uiie or two points of special importance which require carerui consideration before tlie Bill takes its fanal for.n. the first point is one of omission, liiena is nothing in the Bill to bring stock and sutt.on companies and similar concerns into direct relation with the Bill. It may .be impossible at present to do this; but the possibility should not be neglected. .Stock and station companies are in effect banking institutions of great importance. Bike tlie trading banks, they have in the past played a great .part in economic development. But, like the trading banks, they have in the past shown themselves incapable ol resisting the competitive pressure of inflationary finance. Banking eo-oruina-tion which excludes -these institutions is iuconuolote, and may prove fatally in conn I etc. An assurance from tne Minister for Finance that this aspect lia-s not been overlooked or "that it will receive'- consideration, wo\ild be helpful. The Bill provides that the rate of exchange shall he fixed l»y the bank within limits which are not to depart from sterling parity by moi e than thirty shillings for each hundred pounds. Having thus placed its first emphasis °n sterling parity, the Bill provides that this restriction shall no*operate until the Board of Directors wishes to enforce it. In effect the Bill first declares that exchange policy should he directed to the' attainment of parity with sterling but then leaves it to the Board to choose the time But that tiliid tfiajr never come. No one can nossibly know what the futuie rates of exchange are going .to bo. Whitt is to bo gained from insisting on a par of exchange which subsequent events may prove to have no contact with reality T'q insist on parity with sterling is to pre-judge the whole issue and is'therefore unfair to the Board. If the Board is to be charged with the full responsibility of exchange control, it should be free to pursue its policy according to ideals of its own devising. The desirability or necessity of prescribing any limit to exchange variations before the hank is founded and before the trend of exchange rates can be known must therefore be questioned. The clause which provides for the reserve requirements of the bank will almost certainly come under free discussion. A minimum reserve of thirty per cent, against note issue qnd other demand liabilities is provided for. These reserves may be reduced below the legal minimum by permission of the Minister for Finance and on payment of a tax which is so graduated that it increases as the reserve falls. In such circumstances the. bank- is required also to raise its rate of ds' count by specified amounts. The important tiling in the matter of reserve requirements is to give adequate scour ity without- making the system too rigid. With established central banks of sufficient standing these objectives could best be secured by leaving the whole matter to the bank itself. With a new bank, the quality of whose management has yet to be known, some legislative guidance is probably wise. In the Bill under review the requirements arc not harsh and may serve well enough until experience suggests that modifications are desirable.