MORE NOTES?

Rotorua Morning Post, Volume 1, Issue 188, 1 April 1932, Page 6

MORE NOTES?

mr glinkard's views FINANCE MINISTER ADMITS LESS jDAMAGING THAN TREASURY BILLS LONDON Y. NEW ZEALAND. Regarding the existing financial situation .in New Zealand, Mr. C. H. Clinkard, M.P., recently submitted the following deductions and suggestions to the Minister of Finance, the Hon. W. Downie Stewart: — I Deductions 1. The Banks in New Zealand could increase their note issue to> twice the present amount or roughly 6,000,000. 2. They have restricted their issue to the amount actually necessary f or their own copvenience. 3. They are holijing twice the necessary security required by law; and '.n fact hold over £500,000 in coin or bullion in excess of their note issue. 4. Having a monopoly of the note issue should not the banks exercise those rights more fully in order to make available to the State a much I larger amount of currency than that now in circulation. 5. Why do the banks restrict the issue answer after paying 4i per cent r^te tax plus other costs, there is no profit to the banks.

Suggestions j 1. That the banks be required to issue say, £2,000,000 additional notes I to be supplied to the Government at current rates, say 5 per cent. _ l 2. As an inducement the note tax on this additional issue be reduced to 3H per cent. j 3. The first result would be a mutual advantage; the banks would receive £30,000 per annum and the Government would have the use of I £2,000,000 for urgent works at a net cost of £30,000 per annum. 4. This loan would not reduce the funds now available for issue to industrialists, but as it was returned to the banks it would increase that amount. 5. There could be no question of inflation as there would be with Treasury notes, and no variation in the people's currency. On receipt of the above the Minister of Finance replied as follows: —

"Concerning the existing position, it is true that the present note issue is a long way short of the legal limit, but the banks have not intentionally restricted the note issue. In fact, I under our present sterling exchan^e system the note issue is governed by the volume of credit in relation to the commercial habits of the community. The real governing factor in t" e banking system is the balances held in London. Additional notes could ] be put in circulation in New Zealand only by increasing the volume of credit by making additional advaneos, and to do this would lead to pressu e on the London funds. You suggest that the banks should lend the Government £2,000,000 in notes, but on being issued such notes would be returned to the banks. The same effeet could be obtained in a more orthodox way by borrowing £2,000,000 on Treasury bills. If used for deficit finance, however, the transaction would have the same inflationary effeet as the issue of £2,000,000 Trravury notes, although the latter operation would be much more dangerous and more damaging to our credit." To which Mr. Clinkard made the following reply: —

"I have to thank you for yours of 14th instant. I fully recognise the i;elat;onship between New Zealand and London, but I am of opinion that while a great increase in note issue would have the effect of increased demand on London, a reasonable increase which as you admit would increase the flow of credit, would give a most necessary stimulus to our Dominion trade. Treasury bills could only be discounted at full interest ■ates, and would have a tendency to deplete the supply of credit available to commerce. My suggestion would supply funds at 1^ per cent net for land development or other sound propositions. I do not suggest that these funds should be used for the purpose of meeting deficit accounts."