The Temuka Leader THURSDAY, AUGUST 27, 1885. NATIONAL BANK.

Temuka Leader, Issue 1384, 27 August 1885, Page 2

The Temuka Leader THURSDAY, AUGUST 27, 1885. NATIONAL BANK.

In our last issue we referred to the "New Zealand Note Currency Bill," introduced by Mi J- C. Brown, and said that if the leading id«ns of it were included with the prppoßals„.of_tlia- lion, Mr Bathgate and Mr Mncandrew, a measure of great value would be the result. We now propose to pursue the subject further.. The leading idea of Mr Brown's Bdl is to purchase .uncoined gold—as it is dug out of the ground—with Government notes. If that had been done long ago this colony •would not bo in the state it is in at present. From 1857 to the present time there has been exported out of New Zealand nearly £42,000,000 worth of gold, Nearly all of that has been bought by the banks with paper money. When a digger brought his gold to the bank he was paid for it in notes, and we see no reason why the Government should not have bought it on similar terms. The Government paper money would undoubtedly be safer than bank notes, for the reason that Governments have seldom, if ever, been known (o fail, while the failure of banks is of frequent occurrence. If the Government • bad issued notes, and purchased l his gold with them, the colony would not have hod much of a National debt to bear now, because this gold would have supplied the means of paying foreign creditors, while the paper money would have supplied our domestic requirements. We are aware that the argument we used in reference to the notes proposed to be issued under Mr Brown's Bill would apply with equal force in this case : that is, if Government notes got into the hands of the other banks they would demand gold for them at once. But if the plan we have hitherto advocated were adopted this difficulty would be met. Our proposal is that the Government shall establish a bank that will transact the busiuess of the colony, of local .bodies, and of landowners. All these accounts are safe so long .is a restriction is placed on the amount to be advanced to landowners, and consequently a bank of this kind could never make a bad debt. Let us e-e now what would be the. resources ot such a bank. First, the annual revenue, £4,000,000 ; exports by landowners, £5,000,000 ; local bodies, about £1,000,000 ; total, £10,000,000. Besides, there is the Post-office Savings Bank money, the Government Insurance money, fixed deposits, etc., and gold bought by the means of paper money. The item of exports may need explanations. Landowners are our chief exporters, and the obbli which would be paid to them on 'account of their produce would go through the National Bank. The r«* sources of such a bank would be enormous*. Now, supposing £IOO worth of the notes of such a bank got into the hands of the others, cash would undoubtedly have to be paid for them at once, but that cash would come back Again, To give an example of this we need only suppose that A is a farmer who paid B, a merchant, £IOO in National Bauk notes. B at once pays these notes to his credit in bis own bank—say the Bank of New Zealand and that bink demands cash for them, and £JCO in gold leaves the National Bank coffers. But C, another farmer, has on the same day sold to D, another merchant, grain to the value of £IOO, for which he has received a cheque on the Bank of New Zealand, which cheque he places to his credit in the National Bank. The National Bank demands gold for that cheque from the Bank of New Zealand, and thus the money comes back again. Thus the National Bank would always be able to give cash for its notes, for ag fast as the gold was taken out it would come back again : that is, if it kept the accounts of landowners. Setting aside the idea of a clearing house, the leading idea of Mr Bathgate's measure is that the Government shall reserve to itself the sole right of issuing paper money. He proved conclusively. and no one undertook to contradict him, | that this was the right of the State. In this colony the State allows private banks to issue notes on paying 2 per cent, for the privilege ; in England the Bank of England pays the Government B per eent. for the number of notes it issuesbeyend what the State has secured. Here, \>h«re the rate of interest is from 7£ to 10 ptr cent., notes are allowed to be issued at 2 per cant. ; in England, where the rate of interest is from 2 to 3 per cent, the Government charges 3 per cent, for the privilege of iscuing note?. The Grv'rnment of England dea's honestly with the nation ; 1 the Government of New Zealand has

been playing into the hands of the banks. Mr Bathgate's proposal would remedy this by securing to the State the profit of the note issue, but it would not reduce the present nte of interest, nor assist the farmers to any appreciable extent. Mr Macandrew's proposal applies directly to relieving farmers. He proposes that the Government shall make advances to them in Government notes, which shall be a legal tender and bo convertible into Government debentures bearing interest at the rate of 4 per cent. We sympathise thoroughly with this, but we think the scheme has its weak points. For instance, to make paper money which is not convertible into gold, but into another chsa ot paper, a legal tender appears to us to be open to grave objections. The result of this would b« -that a person would be bound to take a legal tender note, and if it dil not run current for him, hi j would have to convert it into a debenture bearing interest at 4 percent. Now 4 per cent is a fate of interest not very acceptable in this colony, and consequently the holder of the debenture would probably find it difficult to sell it except at less than it would cost. Now we do not make these remarks from a spirit of antagonism ; we are entirely in sympathy with the proposal, but we _dej'ire.tQ,point_ouJt_what > ,we think„would lead to a depreciated paper money in the end. Inconvertible greenbacks brought paper money into disrepute in America, and we are afraid that such notes as Mr Macandrew proposes would lead to similar results. If such a National Bank as we suggested were established there could not possibly be any danger of a deprecated paper money, provided the notes were made payable on demand. It would cause other banks to lower the rate of interest by it entering into competition with them ; its profits would be a great assistar.ee to the revenue ; it would save the vast sums now paid in commissions and exchange with xegard to our loans ; it would 6ave the farmers from the ruin that is staring them in the face ; it would release the money now vested in freehold securities, and thus find capital for developing our resource?. We have examined all schemes carefully, but we feel confident that the National Bank proposal is the only one that can possibly meet the case.