ENCLOSURE FROM THE TREASURY RELATING TO THE COLONIAL BANK OF ISSUE. Treasury Chambers, May 20, 1848.

New Zealand Spectator and Cook's Strait Guardian, Volume V, Issue 380, 24 March 1849, Page 3

ENCLOSURE FROM THE TREASURY RELATING TO THE COLONIAL BANK OF ISSUE. Treasury Chambers, May 20, 1848.

Sir, — In reply to your letter of the 15th ultimo, I am commanded by the Lords Commissioners of her Majesty's Treasury to request you will state to Earl Grey that my lords have had under consideration the despatch from the Governor of New Zealand with the ordinance for the establishment of a Colonial Bank of Issue, therein forwarded, and have' at the same time referred to'the instructions conveyed to the Governor by his lord- , ship's despatch of- the 2nd February, 1847, on that subject. My lords observe that the provisions of the ordinance are in general accordance with those instructions ; but it has appeared to my lords to be desirable that, in the respects hereafter specified, those provisions should be in some respects modified and improved. Ist. It is proposed that one- fourth only of the specie received, and for which the bank is to issue notes, is to be retained in the offices of the bank for the purpose of meeting the demands for coin in exchange for notes. My lords consider that this amount is too small to be safely adopted, more especially in the earlier period of the existence of the bank, and until the native population shall have become habituated to, and have confidence in, its operations, and the paper it may put into circulation. The establishment also, as proposed of two or more offices of the bank, with the power given by clause 16 to the holders of notes, to demand payment of them in cash " at any of the offices" so established, wherever the notes may have been issued, will probably lead to deposits with a view to save the expense and risk of remitting coin from one part of the colony to another ; and this will naturally produce some uncertainty in the demands for specie at each establishment. Under all these circumstances my lords conceive that it would be advisable that a larger proportion than one-fourth of the specie received should be retained at the different establishments of the bank, la the Mauri-

tius, directions have been given to retain half of- the coin deposited ; and my lords would have preferred that the same proportion, or at any rate not less than one- third, should have been, in the first instance, retained in the bank at New Zealand. 2ndly. My lords understand that the transactions of the bank are to be strictly limited to the issuing of notes in exchange for specie, and specie in exchange for notes ; and that the amount received in specie, beyond what it may be necessary to retain as a reserve in the bank, shall be invested on sufficient and, if possible, well-defined security. They cannot, however, approve of the general discretion regarding the mode of investment given to the Governor by the 20th clause, which would seem to constitute the bank a general Loan Bank, and to devolve on the Governor -the responsible duty of selecting the mode'of investment, and the invidious task of approving and rejecting applications for loans, and deciding upon the sufficiency of each lecurity that may be offered. My lords would therefore suggest for Lord Grey's consideration, whether it may not be advisable that all investments on the part of the bank should be made in the public securities of this country. In that case no risk would be incurred from the possible failure of the parties to whom advances may have been made, or from their inability to provide punctually at the specified time for the repayment of those advances. ,^ [f this course were adopted, my lords would be prepared to direct that any aid which the commissariat chest on the station might be able to afford, in the event of an extraordinary demand on the bank, should be rendered to that establishment on the recommendation of the Governor of the colony ; the Home Government having the power of selling an adequate portion of the Government securities, in which the investments of the bank may have been made, to repay the amount of 'assistance so rendered. 3rdly. Unless the term " Cash," which is used in the ordinance, be fully understood to mean coin legally current in New Zealand, the provisions of the ordinance should be made explicit in this respect. And in further connexion with this point, my lords, observing that reference is made in the despatch of 2nd February, 1847, to the receipt or issue in exchange for the bank paper of coins of different nations, deem it necessary to remark that they apprehend such coins can only be legally current in a British colony r under proclamation issued by order of her Majesty in Council, or under colonial enactment, which has received the assent of her Majesty in Council ; and as it is of the utmost importance to guard against uncertainty as to the description or exchangeable value of coins to be received or issued at the offices of the bank, it would be advisable that the Governor should be desired to take the necessary measures for providing, in this respect, for the currency of any foreign coins which it is thought advisa« ble to admit to legal circulation in New Zealand at properly regulated values, and my lords deem this the more necessary, as they | have observed that in a Blue Book Return from New Zealand for the year 1844, the rates at which coins other than those of the United Kingdom, are stated to be current, are incorrect, the foreign coins, with the exception of the doubloon, being rated too low, but the East India Company's rupee considerably too high. 4thly. My lords have to remark that the express provision of the 6th clause of the ordinance for empowering sureties for persons filling offices in the bank to withdraw from their liability, though unusual in similar cases, may not be unadvisable ; but it must be obvious that the release from liability can only be contingent upon a sufficient surety in substitution being provided. I have, &c, C. E. Trevelyan.