AUCKLAND NOTES

Hokitika Guardian, 25 February 1933, Page 3

AUCKLAND NOTES

THE .CENTRAL BANK

Special Correspondent. Since I last wrote on the question of utilising internal credit, through ’ a central “bank, under precautions which would enable the notes issued by it to remain stable, and exchange to be brought eventually as forecast 'by Sir Otto Niemeycr to \yithjn 30s of parity with sterling, the whol e aspect has been altered. The Government has deliberately forced up exchange to 25 per cent. The question is what purpose can be served, now by establishing this Central Bunk P . • Tv-,

Well, the objects to be attained were not' only to keep the exchange down, but to regulate th e note issue, : and bring more money into circulation, which could have, 'been safely done under proper (safeguards. The Prime Ministe r had stated that the hank note issue could be more than doubled by

the banks as against th e gold and public securities he'd by them. At first sight it seemed that the forced depreciation of our currency might have been only the first step toward the issuing of .further credits. If the f'-rm. ens are satisfied that they are better off with 125 pieces of pap,e r valued at lbs than they would be with 110 s'imila,pieces valued at 18s which they will receive for £IOO worth (sterling) of produce gold in England well and good. They have of course sufficient knowledge of arithmetic to know they will be exactly one per cent better off—on paper. If they find out afterwards that .this one per. cent. %, more than offset by increase in costs, that is their mistake.

But if, on the gold and public tie,s field, the banks could with exchange at 10 per cent as against sterling, and the New Zealand pound note worth 18s (it was worth just over 18s .2d to be precise) issue soy .ion million pounds in New Zealand currency, they could with exchange at 25 per cent, issue about £11,363,000 on th e same security. However, it would appear that the Government is going now. to abandon/ for this session at least, any attempt to establish a Central Bank which would have been the only practicable method <of regulating currency'to meet the country's requirements. They are probably relying on the inflation of exchange leading to an influx of capital into th P country, this in • turn forcing the banks to reduce their fixed deposit rates and cheapening money generally. But they . have overlooked the fact that tip, whole dornesFc economy of th e country has been upset, the Ottawa agreement virtually repudiated,, and the prospect of balancing the budget rendered very remote—thereby/ .affecting thp ..country’s. credit,. If , t ; he programme now. is simply to force through taxation., bills and compulsorily reduce interest on internal Government eecuritfes the result will b e disastrous. A splendid opportunity was afforded to have bronght down statesmanlike IcsrI’'l- 1 ’' 1 - 1 ution which would have enabled existing financial aroma Wes -to have been removed, but the wrong turning w n r, taken, and >the prestige of the Government has suffered. It G onlv another illustration of the weakness of a. "coalition between Liberal and (Conservative political parties. The Prim, a Minister deserter, Sympathy as his hand, "-as forced ‘in the first place. It Is realised row it would have been far better had lie gone to the country as leader of tin Liberal Partv without entering into an all'noop with his political opeon mis. ipain In’s hand has tmen forced in the matter of the increase in exchange, the danger of, wh'iph he evidently at one tim,? realised. But by this weakness his > mana an a leader has departed, and political chaos seems inevitable for the present. The danger of an appeal to the country just no'w is, however, very great. If the Central Bank proposals are abandoned the Labour Party .are ready w'th their State Bank which would utilise internal credits, it iix true, but in such a way that the credits would soon disappear . and the State paper become worthless. 'Then there is an equally dangerous and pei'nic’ona system called the Dougins Credit, Scheme which is creating considerable interest, and would - influence possibly thousands ‘°f votes if an election were held now. The fact which must not bp overlooked is that the country is clamourfner for a. stahil'Ved currency, and tlm establishing of credits to nut an end to the present depression, The hope was in a- Central Bank assuming currency ”n(Vr restriction,-: which would ke°p it -Jjth'in measu''nb!c distance of parity with sterling. If this hope has now to lie abandoned t.heiy i s every rnnortunitv afforded for bogus remedies to be foisted p.n the mrer-L which can orb- 'lead To irretrievable d'VMer. I w ,; U ref-o' m r ”’o fullv to there elusive schemes in later articles,