The Taihape Daily Times AND WAIMARINO ADVOCATE. TUESDAY, DECEMBER 14, 1920. BANK RESERVES.

Taihape Daily Times, Volume XII, Issue 3652, 14 December 1920, Page 4

The Taihape Daily Times AND WAIMARINO ADVOCATE.

TUESDAY, DECEMBER 14, 1920. BANK RESERVES.

With which ia incorporated "The Taihape Post and Waimarino News."

«. The Chairman of the Bank of New Zealand laid soirie stress upon the fact that many importers were meeting With considerable difficulty in obtaining drafts wherewith to meet their obligations although they might have abundance of money. If importers in this Doralinion experience difficulty in paying for their importations, what must the case of those be who have been unduly speculating? For the latter there can be little sympathy for purchasing beyond needs was nothing more than a gamble in the well-known instability of prices and o f industry generally. The contention of those 'importers who can pay is that banks have failed in one of the main services for which they were established, in not having fully equipped themselvesi for dealing with circumstances, which, though extraordinary could have been anticipated. Then, is it reasonable for banks to pass on to their customers the cost of raising millions of money in London wherewith to perform the ordinary everyday functions of the banking business? It ia urged that with almost unlimited note issue in New Zealand, made legal tender; a paper currency displacing, virtually, the metaltic currency, some abnormal strain basi been placed upon the enormous credit the banks weild, or huge profits and deposits have been invested to earn still higher profits than they would earn in the Dominion. If that is so it is only wh'ai might be expected, but there is some virtue in the contention that sufficient provision should have been made to prevent regular customers of the banks Doing penalised because the money needed i for their business *was used in earning i big interests for bank shareholders. It seems most indiscreet for any public or quasi-public institution such as a bank to enter upon a speculative I course; it has a duty to the public j which sheuld confine it to only legitimate and perfectly safe business. We do not mean to suggest, even, that the Bank of New Zealand has speculated with > their own, or with the money held in trust for others, but there are {people who do .say they have. Eegardless of whatever extraordinary demand the State may be " making upon the bank, or may be making in the near future, there appears to be no desperate cause for * mopping up a none to efficient reserve just to present shareholders with a greater capital, interest. 'lt seems that the State has been placing undue , {pressure upon the bank, or modern banking institutions have abandoned all the concern and care exercised in earlier times of the money placed in bank trust. An old New Zealand parliamentary paper used to be quoted nearly half a century ago in some collegiate banking lessons, in England, as showing how the Lords of the Treasury safeguarded the money placed in banks for safc-kecpirtg. In the year 1847 the New Zealand Parliament established a State Bank; a "Colonial Bank of Issue, to make and issue a j Paper Currency, and to prohibit the making and issuing of paper money by private individuals." The initial operations of this bank were of a very limited character; no notes were issued except for cash, and cash had to be paid by banks for notes whenever demanded. were only legal tender for sums above two pounds, and they could bo demanded at the same rate for cash from the bank. The State Bank had a monopoly, of the note issue, except in the case of the Union Bank of Australia, which had already a New Zealand business. That bank was permitted to continue the volume of note issue it had at the passing of the Paper Currency Bill. What is being led up to is the provision for reserve to be held against the note issue. When the new Act came before the Lords of the Treasury they sent it back to Governor Grey with the recommendation "that oriethird, instead of one-fourth, of the specie for which the bank .is to issue notes, should be retained in the colony; that all its investments should be rnado in the public securities in England, v The first and only New Zealand State Bank had to keejp onethird of the money for which it issued notes in New Zealand. If the bank parted With that i proportion of what , may bo termed reserve it could no longer guarantee that it would remain in the colony. Therefore, the reserve the bank was compelled by the Lords of the Troasury to keep against the notes issued was one-third of the total number, or value. It realised in those early days that there

would be periods of extraordinary demand arise, and provision was made for assisting the bank on. such occasions from the Commissariat chest in i the Colony. A study of the whole j question of exchange leads one to j doubt whether present banking methods are not .drifting dangerously near jto mere speculation; if any serious trouble arose in Britain New Zealand notes might possibly go the way of the German mark. Germany made a blunder that has made erstwhile very rich, people into (paupers, "Snd it is quite within the range of possibility that British people fifteen thousand miles away may foolishly involve Britain in difficulties which would carry New Zealand into virtual bankruptcy. All we wish to make plain is that the strongest" nation on earth may meet with financial difficulties so great as to reduce its credit to much below that already experienced throughout the whole British Empire. America alone is the one nation that can claim complete victory in the great war; America's credit stands highest; Britain's credit is seriously impaired. It. is safe finance to entirely deplete the sjpecie currency, and to use Up bank reserves in an effort to quickly get back to the financial status [prevailing before the war? I* it not | overstepping the bounds of ordinary caution to set up legal tender paper currency that entirely eliminates the mono-metallic standard so long and insistently adhered to? Should [ the evil day come what may happen to the banks,' pajper if they have no specie in reserve? It seems a case of "wanting to have the cake and eat it." Were the Bank of New Zealand ja purely State institution the State [would legitimately stand or fall with it; but. it is not, and with a repetition of the experience of 1894 in what position would the banks customers find 'themselves? Other banks doing business in New Zealand might also be unable to honour their huge note issue, what recourse have depositors? None; without reserves there is no security. There is presented the anomally of one New Zealand Government legislating provision for even a State Bank holding, a reserve of specie amounting to one-third of the notes it issues, while the present Governing the war. If the "Bank Act ment passes a Bank Act that enables a semi-private bank dividing half of its already inadequate reserve amongst beget an optimism that frequently lead on to Trade has been so good that traders have speculated in importations which many are not now able to pay for, and one has sold at a price fifty per cent, below cost. Financial institutions are-still flourishing,' but if stringency pervades all trade it will assuredy reach oanks, and then what ,'becomes of the reservetess note issue? We are quite aware that the Empire, with most of the nations of the world, is passing through . very hard times as a result of the war, a time of uncertain finance, and if the New Zealand Government < sees no other way out of its difficulties, it is doing the right thing in making use of the whole private and public credit, as it made use of its manhood in winning the war. If the "Bank Act, 1920 7 experiment is a success, then the whole community benefits, if it is a failure, and unforeseen financial disaster does overtake the Empire, then wealthy men are the losers, their capital goes. 1