STATE BANKS AND BONDS.

Maoriland Worker, Volume I, Issue 6, 20 February 1911, Page 9

STATE BANKS AND BONDS.

Dear Editor, —According to the bank returns for last June, there is nearly five millions of gold in New Zealand. This is besides the coin in circulation , which is all that is usually required. There is about forty tons of sovereigns lying idle in the banks. That means a bank reserve of about £5 per head for every man, woman and child in the country— which is absurd ! Yet this session Parliament has authorised the borrowing of no less than £6,530,000. How long would it take to sign sixty-five thousand debenentures? Or to count out so many sovereigns ? Certainly every debenture ought to be a voucher that the sovereigns have been received! Otherwise why give debentures and pay commission and interest? Mr Massey says he thinks that " everyone is prepared to admit that it is necessary to borrow money for public works and other purposes." Yet Sir Joseph Ward recently informed Mr Massey that he had received numerous resolutions protesting against borrowing. And I suppose that the Trades and Labour Councils' State Bank deputation meant the same thing. Now, it is twenty-two 3'ears ago since I first pointed out in our Parliament that we had in New Zealand about as much wealth and coin as there was in England ; that New Zealand did not get or want gold from England; that England did not, and could not, send us the gold; therefore, that it is not necessary to borrow for public works and other purposes; and that we only required a State bank to finance our own public and private credits, wealth, labour, exports, imports, coin and paper currency. In 1890, in a strongly supported parliamentary resolution, I maintained that " the Government of New Zealand ought not to exchange its debentures for the cash credits of private banks." The present High Commissioner was among my supporters, and he thereby admitted that it is not sovereigns, but cash credits, that we borrow. The total gross public indebtedness of New .Zealand in 1888 was

under forty-three millions. Now it is over 90 millions! And that is far beyond the value of our total public property. It is the future wealth, labour and resources of the country that are now being pledged. Instead of increasing our public debt, during the last twenty-two prosperous years, it ought to have been nearly or quite extinguished. The following facts and. figures prove that neither foreign loans nor private banks are necessary. Banking economises gold. The first Scotch bank was established over 200 years ago. The shareholders paid in £10,000 of their own money, and upon that basis they found, that they could circulate £50,000 of their own'notes. In 1727 another Scotch bank invented the system of cash credits, which Macleod says has now become so highly organised in Scotland that it only requires a specie basis of 5 per cent to maintain its paper currency at par. This means that one million in coin, a Scotch bank is able to maintain at par twenty millions of deposits and notes. This shows, as any bank balance-sheet will do, that the chief capital of a bank is not its specie basis, but its other assets. Securities are equal to gold; notes to cheques ; cheques to cash credits or deposits ; and deposits, as Macleod says, are " merely bank notes in disguise." Why, then, should the New Zealand banks require to keep nearly five millions of coin against about 27J millions of deposits and notes? The Government deposits of two and a half millions would, provide a sufficient State bank coin reserve, according to Scotch banking, for 50 millions of State bank deposits and notes. Does notj:ommon sense say that a coin reserve of £2 10s per head in the banks, beside the coin in circulation, must be enough for New Zealand? And 50 millions of paper currency is far more than is required to carry on the whole of the public and private business of this country. Last June the total liabilities of the banks in New Zealand exceeded the total value of their assets in New Zealand by over one million and a half. This shows that in tHe aggregate the shareholders have no capital in the banks in the colony. Yet during the last three years the total profits of these banks (not including the note issue tax) have averaged over £1,300,000 a year (of which the State has got less than £20,000 a year for its share. The late Sir George Grey gave mc the credit of being the first in our Parliament to maintain what is truly a great principle, that the control of the currency belongs to us, and that the profits of the whole paper currency ought to be swept into the Treasury.

The president of the London Institute of Bankers lately emphasised: that cheques are now the currency of Great Britain, and that those who supplied the currency ought to provide the gold. As we in New Zealand have the gold and the assets, and could create assets by our own credit, labour and raw material, and natural resources, why should, we not provide our own paper currency? And as, according to Macleod, " all banking profits are made by the excess of credit they can create and maintain in excess of the gold they hold in reserve," why should not the State have the profits of our own paper currency instead of giving it to absentee nominal shareholders who have no real capital at all here ? Whj should we be dependent upon the London Stock Exchange and upon British cheques and deposits? What we require is a State Bank, a whole State Bank and, no other Bank, in New Zealand. With about 20 millions of exports and ten of revenue, a million of men, women and children, in such a country as New Zealand, ought to be financially independent. But " God sends the meat and the devil sends the cooks." Parliaments have no right to forge bonds for posterity.—Yours, etc., J. MILES VERRAL. Swannanoa.