DESPATCH FROM EARL GREY TO GOVERNOR GREY ON THE COLONIAL BANK OF ISSUE. Downing Street, August 1, 1848.

New Zealand Spectator and Cook's Strait Guardian, Volume V, Issue 379, 21 March 1849, Page 4

DESPATCH FROM EARL GREY TO GOVERNOR GREY ON THE COLONIAL BANK OF ISSUE. Downing Street, August 1, 1848.

Sir, — I have received your despatch of the 25th of November last, transmitting a copy of an ordinance passed by the Governor and Legislative Council of New Zealand on the 1 6th day of October, 1847, intituled, "An Ordinance to authorise the establishment of a Colonial Bank of Issue by the Government of New Zealand, to make and issue a paper currency, and to prohibit the making and issuing of paper money by private individuals." Having referred that ordinance, together with your explanatory despatch, to the Lords Commissioners of the Treasury, I tiansmitto you, for your information and guidance, a copy of a letter from the assistant-secretary to that board, pointing out those modifications to which their lordships consider that the act should still be subjected. You will propose to the legislative council the alterations there suggested : but as they apply rather to matters of detail than to the general principle of the act, which is entirely in accordance with , the recommendation of my despatch of the 2nd February, 1847, I have not thought it necessary to defer submitting it to the Queen for her Majesty's confirmation ; and I have now to inform you that her Majesty has accordingly been pleased to confirm the ordinance. You will observe, that the Lords Commissioners of the Treasury have recommended that the investments of the bank should be made in the public securities of this country, instead of by means of loans in the colony. To the adoption of this amendment I attach the greatest importance, not merely on account of the greater security which it will give to the paper currency thus issued, but still more on account of its being calcula- ! ted to carry into more complete effect the principle laid down in my despatch already referred to, of avoiding all interference with private enterprise in the business of banking properly so called. By this alteration the transactions of the Government bank will be greatly simplified, and will be reduced, as originally intended, to the mere supply of the paper money required by the colony — an advantage which will more than compensate for the lower rate of interest which will be received for money invested in the British funds as compared with that which would have been obtained from sums advanced as loans in the colony. The following are the principal heads of the arrangement by which I conceive that these views may most advantageously be carried into effect . — ,» Ist. That portion of the cash received by the bank which it may not be necessary to retain for re-exchange of the bank paper is to be paid over to the commissary, who will grant a certificate to the colonial officer making the payment of the amount thus received into the chest under his charge. 2nd. This certificate is to be transmitted by, or on behalf of, the Colonial Government to this country ; and on production of it here, the treasury board will direct the issue of a corresponding amount for investment in public securities. 3rd. The investment will be made in such manner, and in the names of such trustees, as

the Secretary of State and the Treasury Board may appoint, or as maybe approved of by the Secretary of State and the Treasury Board, on the recommendation of the local government, on which point I should be prepared to receive any suggestion from you. 4th. The payments to the commissary should be made to the principal officer at head quarters, and not in the subordinate chests at out-stations, unless with the consent and by i authority of the principal officer, by whom all ! certificates to be forwarded to this country must be signed. sth. The sums invested will be held on behalf of the colony ; the Colonial Government will be permitted to draw against them if it should become necessary to raise specie I for the use of the bank ; and should any adj vances of cash be obtained by the bank from the commissariat chest, the Treasury Board will retain power to diiect the repayment of such advances out of these investments. ! 6th. The commissary will be authorised to pay over at any time to the bank, on application from the Colonial Government, such specie as may be in the chests of his department in the colony, and not immediately required for the usual commissariat payments. 7th. The vouchers for any sums so paid over will be forwarded by the Commissary to the Treasury Board ; and upon receipt of these vouchers the Treasury Board will direct the realization of a sufficient amount of the investments on account of the bank in this country to repay the advances. Bth. No interest will accrue to the bank on the sums paid into the commissariat chest until they are invested here. Neither on the other hand, will any interest be demanded from the bank on such advances as may be made from the commissariat chest. 9th. The specie advances from the commissary are not in any case to exceed the amount of the payments that may have been made to the commissariat chest on' account of the bank for investment after the deduction of any suras that may have been otherwise drawn for by the Colonial Government against such investments, and of which drafts the Commissary would be instructed to require a certified statement before making any advance. As I find, upon inquiry, that it will be the most economical plan that the bank notes should be printed as well as engraved in this country, measures will be taken, in order that they may be forthwith prepared and forwarded to the colony. — I have, &c, Grey.