BANK OF NEW ZEALAND.

Taihape Daily Times, Volume 7, Issue 87, 11 December 1914, Page 3

BANK OF NEW ZEALAND.

CHAIRMAN'S REPORT

WELLINGTON, Tills Day

The chairman said. —This being the half-yearly meeting, we have no accounts to submit to you, and the only actual business to be transacted is the election of a representative of shareholders on the board, and the declaration of an interim dividend. The Financial Crisis. —In view of the disaster which has overtaken the financial world since last we met you —a disaster which was inevitable upon the involvement of the leading nations of the world in the deplorable war which is still in progress—you- will naturally lock to me tor come indication as to the immediate consequences entailed, and the picbable effect upon the Dominion and upon the bank in particular. Immediately upon its becoming known that our Mother Country was involved in the struggle, the New Zealand Government, with commendable promptitude, took the special st; -s which became necessary to protect the

financial situation in the Dominion. A bill enabling bank note.-; to be proclaimed legal tender was passed through Parliament, and a proclamation issued making bank notes legal tender on and after August 6 last. The proclamation has been renewed, and it will* no doubt be found desirable to keep it in force until the war is ever. The object is not so much to provide currency facilities as to enable the banks to protect the gold reserves of the Dominion. The Government further assistd in this direc-' ticn by legislation prohibiting all export cf gold, except such as it specially sanctioned by the Minister for Finance.

The legal tender note proclamation ha? resulted in an increase in our notg circulation -by roughly half :a mil r lion pounds. The increase is, however, no gain to the bank, but rather the reverse. We have to hold gold or Government securities against every note issued, while at the same time we pay taxation to the Government 0:1 the circulation at the rate of 3 per cent, per annum. To this has to be added the cost of printing the notes and of administering the note department of the bank, which makes the total cost of our note fssue 4J —41 per cent, per annum.

It was not found necessary to proclaim a moratorium here such as was require- 1 ,:! in the United Kingdom. All th?.i; wa3 needed was a provision for the protection of mortgagors, and of purchases under "agreerjerits for sale and purchase" with instalments of purchase money falling <L;e. This provision was made by cite "Mortgages Extension Act," which prevents realisa. tion by mortagees or v.'-naors under powers of pale r "^ f r!:"i nl in securities, except with the sanction of the Coiuf.

In London, the position was of course different. It was, as a matter of fact, very seriotii —far more serious than we at this distance, and in our circumstances, can possibly

conceive. All the delicate financial machinery daily in operation there was thrown suddenly cut of gear: 'he complex monetary organ! im whose .vitality centralises in Loud- n was fov the moment paralysed. For a few days all was confusion. With the bank rate at 10 per cent, the money market was dead; the banks were temporarily closed —the statutory bank holiday on the3rd August having been exteil/1 over the 4th, sth and 6th idem; irade, shipping and commerce, ail at a standstill; the British Government, bankers and financiers confer l .g as to tlu best means of meeting a crisis quite unprecedented in the history of the world.

A moratorium was pro daimed, and, to assist in conserving the gold reserves of the country, Government Treasury notes for £1 and 10s each were authorised to be made legal tender. The banks were supplied wi'.i notes by the British Tr • sury, paying to the Treasury for the acoommoda: ■ -r. a tax equal to the Bank of England rate during the time that the notes are used.

The banks re-opened on August 7, but were unable to immediately refume discounting or the buying of bills of exchange. Then a measure of relief came. It w:':-- announced on Augu"-'. 13 that the Bank of England would give assistance under the guarantee of th 3 Britif-.h o."'v:v.\*.iment, by discounting approvi-ii bills of exchange accepted prior to August 4, 191-J (i.e., approved pro moratorium bills), without recourse to the bolder. Thereupon a rush to the Bank r.f England with !»i ; .'.-3 for discount set in, prompted by a desire not only to obtain the Suin-55.il accommodation required, but to get rid of all liability on the part of the holders of the bills. For a time it

was a physical impossibility for the bank to deal with the whole of the bills presented daily. But gradually the mass of business was disposed of. The streams of finance began to how again in their accustomed channels, though in greatly reduced volume. Business began to assume again a more normal aspect, and national credit was, in a large measure, restored.

Viewing our general position, we may be said to have come through the crucial stages of the crisis with the minimum of inconvenience and loss. It is impossible to arrive at any trustworthy conclusion (with regard to the duration of the present momentous struggle. When experts differ, it would be presumptuous for a tyro to attempt to prophesy. But I may observe in passing, that if the supply of soldiers were the only consideration, doubtless Germany would be able to prolong the war for an indefinite period. I cannot, however, help thinking that the huge economic and financ

shortly have to face, will prove a very important factor in determining the duration of the war. Financially and economically she and her ally have, for some time, been practically isolated from the rest of the world. Her commerce is dead, her industries are at a standstill, and the enormous amount of capital sunk in both commerce and industries is totally unproductive. The economic waste from this source alone must be somethingappalling. But when we add to this the cost of the maintenance of her immense armies in the field—the pay and the provisioning of -he soldiers, the enormous necessary supplies of ammunition, guns, and other weapons

of war, etc., etc. —it seems that sooner or later an end must be reached by the process of internal exhaustion. Surrounded on all sides by enemies, and with her seas closed by hostile fleets, outside supplies, in the quantities req aired, would seem to be quite unobtainable. It will interest you to learn that, according to the German Year Book for 1913, the imports into Germany in 1912 totalled £534,570,000. These came principally from the United States, Russia, Great Britain, France, and India, and were represented in great part by foodstuffs. These sources of supply are now, of course, absolutely cut off. Further, her export trade, which in 1912 amounted to £447,800,000, is also completely paralysed. GENERAL. Within the Dominion, the ill-effects of the state of war are not very apparent. The withdrawal of the expeditionary force of 10,000 men has cf course affected the labour market to some extent, and many businesses are working shorthanded in order to keep places open for the men on their return.

The industries of the Dominion are not likely to be adversely affected by the war, but rather the reverse. Prices for our staple products—wool, meat, butter and cheese —are satisfactory, and a large output is assured. If adequate facilities be provided for the conveyance of our products to the remunerative markets that are awaiting them, a prosperous season will be experienced. Shortage of carriers was at one time apprehended, but the Government has now taken the matter in hand and.is understood to be making arrangements which will give ample provision for the export of all produce available. In view of the condition of the money market, it is satisfactory to learn that the New Zealand Govern-TK-ist has completed "rrangements for providing the funds required to meet maturing loans and to carry on the necessary services of the Dominion. The British Government h.as, we understand, intimated its readiness to assist the nation's Oversea Dominions by advancing to them a portion at any rate of the moneys which they may require during the currency of.the war. .