REPORT OF THE COMMITTEE ON THE BANK OF ISSUE.

New Zealand Spectator and Cook's Strait Guardian, Volume IX, Issue 954, 23 September 1854, Page 4

REPORT OF THE COMMITTEE ON THE BANK OF ISSUE.

The Committee of the House of Representa-tives-appointed^ report-as .to' whether it be desirable to mnintain the present Bank-of Issue or to make any and what alteration therein, or to substitute any and what Government Bank in lieu thereof, having taken evidence such as could be procured on the spot, and attentively considered the subject, have agreed to the following report; — They find that the present Colonial Bank of Issue was established at ' Auckland and Wellington on,theljsth October, 1847,' in -consequence of instructions from Lord Grey of the 2nd February of the same year, „in which his Lordship acknowledges to his being ignorant at that time of "thVexisience-of- the Debenture- Debt, or that an# paper nibney^ vras ' in -cirdulation in the co-i lony. ] 'He admits the measure to have been an experiment, and the- principal 'objects 'he proposed io accomplish .by it were, th'e economising of cap- ' itak ,and the, uniting th,e convenience of a paper currency with the steadiness and uniformity of value which belong 1 to a metallic currency. In 1 the first stage of tbe r enquiry your Com- ' mittee. meet .with a -difficulty from being unable (ilearly to understand, what 'distinction, if any, Lord' Gr^y draws' between" Coinage »s^ Currency, and Coinage as a commodity "of commerce^. Currency!;, in its lej;itirriatfe" sense, signifying something which, whether or not baying value in > itself, passes' Current for and 'represents something else'havftig a reaTvahiet The* term ; is equally applicable, to Bank/Notes, Bills of Exchange, and Promissory Notes. 1 Coinage," always" supposing it" unadulterated, s wbether f 'c6nsisUrig ; of gold/ silver^ or copper, has another distinguishing feature, that of substantiality,- the commodity, composing it, is a market-, able one, arid a pound' weight of it has at all ■ times" a valtfe, just' 'as 'a pound of coffee, sugar, or anyoth'e'r 1 article' of:commerce, and, is, though in a less degree, subject to the same-fluctuations. It is necessary to distinguish between these terms in order to uii'derstatid clearly 'the character • which the Bant of- Issue assumes- asa new and anomalous Institution ;, for there appears to be nothing exactly like it existing anywhere else. It rriay' be'chara'cterize'd *as/a measure' for economizing the 'gold coinage (not the capital) of the colony,, by substituting a paper currency for, the coinage which it withdraws from circulation, and investing the latter' at interest, thereby economizing it or rendering it productive. It thus deals only with the coinage and in no ways affects the general currency of the colony except by theoper-, ation of the restrictive enactments contained in the Ordinance. But these enactments have the effect of restricting the whole currency of the colony to the quantity of gold coinage which may accidentally be 'in' existence' within it; at 'arty particular time, thereby 'leaving every other description of capital, even gold itself, .if uncoined;, /without any repre^, sentative of value, and if at. any time a sudden demand for the exportation of gold coin should occur, as a better means of remittance than any other article of commerce, the 'coinage might disappear altogether,' and no currency be, left for exchanging'the" 1 various commodities of the -country. Hence tlie'unsounnness of the measure, in its limitation of the; circulating medium or currency, instead of allowing that expansion 'of the latter which the extent of commercial operations from time 1 to j 'tirne' requires, and' wtiich a paper currency based upon' property- in the colony '(not upon coinage,- gold or silver) would always be calcalatea" to afford, under judicious management. i T'jord l Grey in Speaking of economising capital, or, fn' other words/teridering it productive, confines the term exclusively, 4o that portion of the capital of the colony which consists of gold coinage, leaving dvt v of yiew'tbe more extensive" application" of fheterm "capital" as representing its 1 ships, .corn,-, merchandise, flocks and- industry in general, these equally form the capital of a country and require means for their productive employment ; his measure not-only fails in supplying- thi* wapt, but -absolutely prevents the colonist** from' providing .against it themselves, l)y forbidding tWm to create^ a representative of their value,' by which 'they'-may'be' exchanged. ,The ,p,apef issues of r the'Bank, or 'present exclusive p^per currency, of the qolony, only represents so rn'uch' gold coinag'ej the product of preVioils industry, 'creat«d,"or 7 intr'6duced into the colony by the colonists*'* themselves, which it .withdraws and invests. A large amount, probably equal to that withdrawn, remaining still in circulation siaVby sfde wilb/the p/aper. According to the official returns of last month, the issue- of paper r at Wellington amounted v to. . , £32,842 0 0 At : Auckland" ..".'.. ".'. '. ' 7,481 ' 0 0' i ' t ' 0 0 Eepresenting investments in'the British funds :-^— Wellington .... t ... 15 ,000 0 0 ' Auckland 1,000 0 0 Coinageiiich'est,Wellingtonl 7,B^2 0' 0~ Auckland;. 6,481-0 .0 ' 40,323 0 0 The' public of Auckland appear never to hav 6 been very favourably'disposed ■ towards the circulation r of- this;paper,or" inclined to use it-gener-ally for their trad ing-purposes^ .preferring the gold, coinage. The original source from which its circulation sprang was tfiat of the Government expenditure. In Auckland especially the dealings' of the-Bank are almost, entirely cpnfined to the Colonial Treasurer and the' Union Bank, one paying in the J gold and the other drawing it out ; the whole transactions tor the month of June at this branch amounted, to, £6058, in'whkh.tbe public participated only v to the extent of £355, while -the .dealingsvitn 'ttfe two establishments before mentioned were £5703. i >-*,•" In JPellington the Batik seems always. to have maintained a better reputation ; its circulation 'therc'is riearly five times that of AnckWd, a dif-

I- ference so disproportionea to the requirements of ;e the two places, tl)at it is only reconcUeable by the » presumption that some spirit of has' prevailed an the latterpkce from which-Weiling-r. ton has been free. , euiug > In regard to management, it appears that the - interest upon the investments' made in the British ' funds, jsinte itheiiristitution of the Bank.samounted on<the>s,th'Julys 1853? to<" £545 , o b The interest accruing.to sth July, 1854,in consequence; of increased invest- [„ , meats will amount, in addition, to about 420 0 0 In a 11.;,.; £965 0 0 The "expenses of the Bank for the r same period, not exactly ascertained, have been at Wellington, about .' £620 '] I Auckland „ '.. 850 *" , London l „ ............ 102' '- ' ' , ~s— 1572 ' :'a : , i. Exceeding the Profits by » £602 u There is, however, a sum of £5000 ready to be ie, .invested from which will increase the d investments to £20,000, and produce an annual 3- interest of about £600, being more than suffici-, ent to meet the annual espenses'for the future. >r> A more serious 'loss has attended: its operations '" in consequence of the fall in the ' British funds of :e nearly 15 per cent., causing a diminution in its '" actual capital at the ; present, time of about P £2,400. , . > V ie "As an experiment, therefpre, of economising^' 11 capital, the measure must be, considered a failure. '"" Arid the object of uniting th'e convenience of a paper currency with the steadiness and uniformity " of , a. metallic coinage. appears, also, to' be unattainable, .unless some mode of investment for the '■* surplus coinage withdrawn from circulation-^ can !P be 1 found, which shall at all times have an equal fixednessof-"'value with the coinage iiself ; -the English funds have proved unequal to -this con- '" tingency, and no safer or apparently less fluctue ating security could then, or perbapa can ( even r » now, be found. r » 6: The, objections to which the present Bank of Issue is open, are,— : - Ist. That it.is a measure uncalled, for, by, the' l circumstances of the, colony — an experiment un- , tried anywhere else, and peculiarly unfitting for a , , young colony requiring the utmost means, , for de- > veloping its industry and resources. I 2nd, That it Jipjits the, currency to the quan1 tity of gold coinage that may happen at any; lime to be in the country. " 3rd. That the moderate expectations which ,"j- Lord Grey [had formed of it, as an, economic .measure, have not been realised, u 4th. That the commerce of the colony requires a currency, or representative of value, that should be both creative and expansive in its operations. sth. That it neither created the coinage which , its paper currency has displaced, nor does the latter possess the expansive character of a currency which" should develope and bring into ac- , tive operation the real capital and industry of, the colony, whose increasing resources and wealth require the establishment of a system of Bank- ,' ing tending to-their more effective and rapid development.' 6th. That this most desirable object will not be accomplished by any system which shall base the currency, as the present one does, exclusively upon the gold coinage. After careful consideration, your Committee have come to the resolution that it is not desirable to maintain the present Bank of Issue, nor can they recomraeud improvements as to the mods ■• of investment or management, which hare sugg ested themselves' in the course of investigation, ' because they are of opinion that the existence of ' any Government Bank issuing its own paper • exclusively is* injurious to free commercial'enterprise. They are not, however, inclined to recommend its- immediate abolition, which would cause too sudden a derangement of the monetary affairs of the colony; it might be allowed gradually to lapse, in the natural course of events ; and al- \ though they believe that its existence is incompatible with such free banking, institutions as the \ colony requires, and that it would sink under a rivalry with such establishments, they think that in^giving opportunity for their formation, arrangements might be made with any banking companies for retaining for a time as part ob their as1 sets the present paper issue, so that the affairs of the present Bank might eventually be wound up 1 without any loss to the "colony. . It is. necessary to state in this Report that a minority of your Committee' (consisting of 4 out of 10) are of opinion that the Bank of Issue should be maintained, although they would readily adopt/ a better substitute, if such can be found. The question as to what change should be introduced into the banking system of the colony, ' has not been strictly referred to your Committee, .nor is it one derqauding an immediate solution ; it is very desirable that the attention of the House, and public opinion also, should lie directed to the subject during the recess.' 1 In any change to be hereafter made, three systems, now in operation, present themselves for consideration : — ,- Ist. The ' Joint Stock > Banking system of, .England : >, ■ ■. 2nd. The application of' the principle of the ,Bank of iof 'issues specifically guaranteed:, .' ' ' ' , 3rd. The system , of Jp\nt, S,tock^Banks'prevailing in Scotland. It may be, further necessary to consider 1 in what manner \any,of these .systems may be most beneficially applied to the exigencies of< any particularProvince. The following'j3tateme,nt shews the comparative working, of the two branches of the .Bank of Issue at Auckland and Wellington, from the commencement to the -30th June, 1854". — * Present Total Total Issue's. Expenses. Profit. 'Auckland £ 7,481 850 .105. 105 ' Loss £745 Wellington 32,842. ,620 s 860 Gain 240 , The following shews the last year's work. ing ; — « Annual Annual Expenses. Profit. Auckland, about ,£2Ol , .30 -Loss £171 1§- arm. , Wellington, „ . 2«0 390 Gain . 190 , „ ' 1 ' '* ' ' JAS. KEIiHAM,* ' Chairman. s