A RESERVE BANK

Rotorua Morning Post, Volume 2, Issue 255, 20 June 1932, Page 3

A RESERVE BANK

(Sepcial to "Morning Post.")

N.Z. PROPOSAL CHAIRMAN, BANK OF N.Z. SAYS NOT SUITABLE FOR DOMINION. NO SHORTAGE OF CURRENCY.

WELLINGTON, Friday. In the course of his report to the direetors of the Bank of New Zealand this morning, the chairman, Mr. Oliver Nicholson, touehed npon the abandonment of the gold standard by Britain and the suggested constitution of a central reserve bank in this country. What the ultimate effect of this abandonment will be, he says, it is difficult to forecast, hnt it is inevitable that we fall in line with what Britain does and accept with the best grave possible whatever readjustment may become necessary. "There appears to he a growing opinion in certain eircles in the Dominion •that, in the interests of the eonntry, the establi'shment of a Central Reserve Bank is essential to control effectively exchange rates and conduct the note currency and as it is possible that a Bill providing for the establishment of a Reserve Bank may, in the near future, be submitted to Parliament, the following observations defining the bank's views and attitude on the question may now appropriately be made. "It will be remembered that just on two years ago Sir Otto Niemeyer was invited by the Government to visit the Dominion to advise on the banking and currency system. His report has been made public together with a draft of the legislation which he reeommends should he enacted. Thr views of such eminent men as Sir Otto Niemeyer and his associate, Professor Gregory, are undoubtedly entitled to the utmost respect; as also the views of those whose long and practical acquaintance with the financial and business needs and the currency system of the country enable them to speak wtih authority. "The unanimous opinion of the board of the bank is that whatever may be the merits of the recommendations submitted by Sir Otto Niemeyer, there can be no question that this is not the time to make a change in the banking currency and exchange system of this country. "Time enough to consider a change if it he necessary — which we do not admit — when the present depression has passed away, and conditions have again become normal, otherwise ther? would inevitably be a serious dislocation. "The principal functions of a Reserve Bank are, according to Sir Otto Niemeyer's report, to exereise the sole right of issuing notes (and so regulating credit) and to maintain the London exchange rates within the gold points — say, 11 per cent. However desirable central reserve banks may be in countries earrying very large populations, and in close contact with similar countries, the position hecomes qnite different when dealing with isolated countries of a small population, which is the case of this Dominion. The experienee of South Africa's Central Reserve Bank, which operates on the lines proposed for New Zealand by Sir Otto Niemeyer, are not encouraging, as that bank has not functioned successfully in the achievement of the purpose for which it was established. Turning to the question of the safety and elasticity of the existing system of note issues of the different banks in New Zealand, the notes are a first charge on the assets of the issuing bank, and are further secured by a backing of gold and Government securities to the full amount of the circulation. As to the elasticity of the system, the ease with which New Zealand met the financial upheaval of 1920-21, leaves no manner of doubt on that point. It would be contrary to fact to say that at pre- ' sent there is any shortage of cur- - rency. No Opening for Industry. "The fact is that there is no opening for extension of our existing industries, nor for the establishment of many new ones, on a profitable basis. consequently there is no legitimate demand from the public for further currency or credit. We have little faith i nthe view that a chain of reserve banks throughout the work would he of any advantage to New Zealand. In times of stress every country must necessarily treat its own needs as paramount — that point must have heen brought home to our Government, when, in juecember last, London required, as a condition of renewing four millions of Treasury Bills then about to mature, that the banks in NeW Zealand should he compelled to find in London one millior per month during 1932 to meet the Government's requirements there With all the goodwill in the world to ward New Zealand, London must protect its own credit first, therefore : Lelioves us to look after ourselves. Profit Questionable. "It does appear questionable tha+ as a result of the establishment of a reserve bank the Government would by the profit from the note issue. of such bank he recompensed the loss it would sustain by the withdrawal of the note issue from the joint stock banks — that exchange on London could always be supplied on demand in exchange for the reserve bank notes and that the controllers of such bank would be better able than the authorities of the joint stock banks to judge the measure of credit required to meet the legitimate needs of the country."