(Original Correspondence. To the Editor of the New Zealander.

New Zealander, Volume 5, Issue 316, 9 June 1849, Page 1 (Supplement)

(Original Correspondence. To the Editor of the New Zeal ander.

Sir,— -In a late number of your paper there appeared a Despatch from Earl Grey to the Governor of th'i colony, on the subject of the New Zealand Currency Ordinance. May I beg the favour of your publishing, in your next number, tlte enclosed letter to his Lordship, on the same subject. I am, Sir, Your obedient lervant, A. Kennedy. Thursday, June 7, 1849.

Auckland, May 26. 1849. To The Right Honorable the Earl Grey, Principal Secretary of State for the Colonies. My Lord,— Your Lordship's Deipatch to Governor Grey, dated Ist August, 1848, informing him that Her Majesty the Queen had been pleased to confirm the Ordinance for establishing a Government paper currency in New Zealand, has been published this day in the Auckland newspapers. As this Ordinance is of more than uxual importance to the colony, I do myself the honor to address your Lordship, for the purpose of making some observations •n it, as well as on the amendments and modifications suggested by the Lords of the Treasury, and referred to in your Lordship's Despitch. The professed object of the Government, in pro. posing the New Zealand Currency Ordinance, was to provide means by which the value of paper money may always be kept on a par with gold ; while, at the same time, they could not disregard the prospect of deriving a profit from its operations. It was represented to have a double character,— to confer a great adaantuge on the people, and to open a source of profit to the Government. The Ordinance, therefore, h*s been framed «o rs to prohibit the issuing of notes by Banks or private individuals, and all notes at pren»nt in circulation are to be withdrawn ; and, in future, paper money will be issued only by tho Government, and their notes, like Bank of England paper, are to be a legal tender every, where except at the place of issue. If this principle is carried out, and the operations of the Government Bank limited to the exchange of gold for notes, and notes for gold, the public can have little or nothing to apprehend from such a eur.ency. But there is a clause in the Ordinance, (Section 2, No. 9,) which authorises the Governor to open the Bank on such days and at such hours as he shall by proclamation appoint. Such a power is highly objectionable. Tne act should have been complete in itself: ho power sb«uH exist beyond the Ordinance. Every provision should have been clear, distinct, and defined, and nothing left to the will or power of the Governor. In the clause referred to, there should have been specified, not only the days, but the hours ol the day, in which business would be transacted by the Government Bank of issue, iv order to prevent the possibility of a mistake arising from official or personal interference. Besides, your Lordship, and the promoters of this system ot currency, claim, as its chief merit, that it cannot be influenced by the interests of any party or individual in the state ; but if the Governor is to have the power of interfering, it is no longer entitled to the character which iis supporters claim for it. The notes asued under the provisions of this Ordi« nance will be of no value in the neighbouring colonies, or, indeed, anywhere out of New Zsaland. Under these circumstances, unless the Government Bank of Issue was to be kept open daily during the usual hours of business, the public would be exposed to great inconvenience, as the daily demand for Bills of Exchange on London and the neighbouring colonies would create a demand for coin, which, if not immediately obtained, would sink the Government notes to a discount. And a though the legal tender clause in the Ordinance might fjrce them on all parties in payment of a debt, yet the English Banks of Exchange would not receive payment in a deprecative currency for their Drafts on London and the neighbouring colonies. In this way the English Banks of Exchange would be a check on the Government Bank of Issue, and keep the circulation at its proper value. The amendment proposed by the Lords of the Treasury, whereby one-half instead of one-fourth part of the coin received in exchange for notes is to be retained in the offices of the Bank, for the puipo3e of meeting any demands for coin in exchange for notes, is an improvement, and will have a tendency to con* cili&te public confidence. With re erence, however, to the suggestion of the Lords of the Treasury for investing the other half in the English funds, and in the event of any extraordinary demand for coin being made upon the Bauk, the Commissary would advance the amount invested,— l think it injudicious ; indeed, it would be unwise to invest auy portion of the capital of the colony in the British funds for any purpose whatever. Instead of investing this sum in the English funds, if it were to be judiciously expeided by the Government in the erection of wharves, making of rotda, an d other improvements of a permanent character in this colony, and the Colonial Government issuing debentures for the same, bearing interest at the rate of six or seven per a nt., would, merer/ way be » more legitimate investment.

And for this purpose that portion of the coin which may not be necessary to retain in the Bank for re-ex-change of notes, could be paid to the Local Government, and debentures issued for the game, which could be handed o»erto the Commissary; and in the event of any extraordinary demand being made for coin, the Government Bank should be permitted to draw specie from the Commissary to meet that demand to the amount of the debentures deposited. la this way the surplus funds would be employed to advantage, and for the benefit of the colony, without endangering, or even impairing, the stability of the Government Bank. Although I have pointed out what appears to me to be defects in this Ordinance, and suggested some alterations which I think calculated to render it more acceptable, at the same time I can see no good grounds for believing that the measure can be in any way beneficial to the colony. The measure itself may be good, but it is wholly inapplicable to our condition, as the state of the currency here is very different to what it is in England or Scotland ; and in order to convey to your Lordship some proof of this circumstance, I beg to observe that in Australia and New Zealand the circula* tion of notes does not form any part of the profits of Banking. In these colonies, the amount of coin held by the Banks usually exceed the amount of notes in circulation, in the proportion of three to one ; while in Scotland, for instance, it is well known that the reverie of this is the practice. There, the circulation of notes always exseed the amount of coin ; and, under such a system, considerable profits are derived from circulation. In support of theie remarks, I beg to refer your Lordship to the anneied statement of the Official Returns of the notes in circulation in Scotland, New South Wtles, and New Zealand. These returns alio show, that in proportion to the population, the amount of notes in circulation is as high in New Zealand and New South Wales as in Scotland, which forbid the hope to be entertained, that the Government Bank of Issue will be able to keep ii circulation a larger amount than the Banks do at presen'. But talcing the most favourable view of the measure, »nd allowing that it i* brought into successful opera • tion— What is ths result? A circulation of is obtained, which places an equal amount of coin is the Government Bank, one half of which must remain as dead stock to meet the daily demands for coin, in exchange for notes, and the other half will be invested in the Britisn funds at three per cent. By which means, a Revenue of £225 per annum is realized— a sum insufficient to pay the expence of engraving and making the notes, without ever taking into consideration the cost of maintaining iwo establishment?, tt an expence which cannot be estimated under one thousand a- year. Perhaps New Zealand, in its present condition, may be considered too limited a sphere for the successful operations of tint syste nof currency ; and your Lordship may very naturally suppose, that as the colony advances in wealth and population, the merits of this system will be developed, and its advantages become duly appreciated. But there ars no good grounds existing for entertaining even this view of the measure. If New Zealand is considered too limited a field, the same objec tion cannot be made to New South Wales. From the Return alreaJy referred to, it appears there it a paper currency in that colony of £200,000. And allow that this Government currency measure has been succesifully introduced there, a circulation is therefore obtained of £200,000, and an equal amount of coin is at once placed in the Government Bank, As a matter of course, one-half of this sum must remain as dead stock to meet the daily demands for coin, in exchange for notes ; and the other half would be invested at three per cent, in the English funds, which would give a Revenue of three thousand a-year. But in order to carry tin's measure into successful operation, Government Bank Offices would have to be established in every district of that extensive colony, and theie could not be maintained at a less expence than seven thousand a year. The result, therefore, in this more extended sphere of operation, would show an excess of expenditure over Revenue of four thousand pound*. In making these remarks I have endeavoured to shew to your Lordship that, as a financial measure, this Currency Ordinance, if carried into opsration, cannot be successful. At the same time I cannot perceive that its provisions, in other respects, are calculated to facilitate the transactions of trade, or promote the industry of the colony. I have the honor to be, My Lird, Your most obedient Servant, A# Kennedy.

The amount of population in tliii return is estimated, not official.

Population, (circulation.) n £^ y Scotland New South Wales 3,000,000 2,951,923 200,000 199,245 15,000 14,592 1,085,506 608,251 45,055 New Zealand . . .

Abstract of Returns of Coin held by the Banks, and Notes in c roulation in Scotland, New South Wales, and New Zealand.