N.Z. EXCHANGE

Hokitika Guardian, 25 August 1933, Page 7

N.Z. EXCHANGE

FINANCE PROBLEMS REVIEW. A contributor reviewing the financial problems of New Zealand in the Banking Number of tne Times Trade Supplement, observes that a revision to a free exchange policy in the. Dominion is presumably dependent upon a revival of Pile export trade. ,’Unfortunately, the figures for the few months that have eapsed since the imposition of the higher rate do not indicate any such revival, although the period maybe too short to form a fair trial. For tne financial year ended March 3ist last the surplus of exports is estimated

at '£18,000,000 which is considerably more than the amount required to meet i oversea interest payments. For the preceding year the export surplus was £11,300,000. By succumbing to the “higher” exchange demands the Government automatically brought extra burdens on the Budget. The financial year 1932-33, however, was not affected much and closed with a small surplus. For 1933-84 new taxation estimated to raise £2,400/00*0 has been imposed and reserves of £2,000,000 have been utilised. By this means the prospective deficit for that year has been reduced, but it still amounts to £4,500,000. The Reserve Bank Bill.

The New Zealand Reserve Bank Bill follows closely the recommendations oi Sir Otto Niemeyer, who, issued his report, after an exhaustive study of the banking and currency system, in August, 1931. Provision is made for the management of the Bank to be nonpolitical. The initial capital will be £500,000, with a reserve fund of £l,000,000 provided by the Government. Dividends will be limited to 51 per cent, cumulative and the balance of profits will he divisible between the Government and the reserve fund. The bank will have the sole right of note issue on the expiry of six months’ notice to he given by proclamation. When the note issue is taken over reserves of gold and bullion in the private hanks will be transferred .to the reserve. bank in exchange for the equivalent .value of bank notes of the latter. .

Any profits made by the,reserve hank on • the sale of gold', bullion are to. be allocated by agreement, or arbitration to the’reserve fund; of the central- bank and the trading bank from which, the gold was taken.

Not unnaturally,. the commercial banks have viewed the new ; bank project .with' disfavour, holding that the time is not yet ripe,. for such an institu-. tion. It is true that a reserve bank in a comparatively new and ' undeveloped country like New Zealand does not have so wide a scope as in older, countries. The advantages, of the plan, however, which have doubtless weighed with the Government; are that a reserve bank will provide an instrument .for co-operation With iotber central hanks, and that the establishment of the sterling exchange standard will promote exchange stability and will convert the dormant gold at present held against note issues into an-earn-ing asset.