CREDIT EXPANSION

Wairarapa Times-Age, 22 July 1939, Page 7

CREDIT EXPANSION

NEED OF CALLING HALT

RESERVE BANK DIRECTORS' WARNING.

DANGERS OF INFLATION

EMPHASISED

ißy Telegraph—Press Association.!

WELLINGTON. This Day

The (lesirabilii.v of avoiding' lui'llier recourse Io the lieservo Bank for financial accoinmodal ion and <>l limit ing' (tot eminent expenditure is emphasised in the report of 1 lie ima rd of di reel ors oi 1 lie Ueserve Bank for the year elided March -'ll last, which was tabled in Ihe House ol llepiesoniatives yesterday.

If such a policy were adopted, the directors state, it would ’improve the capacity of the bank to give financial assistance during relatively imsatisCac lory exp.n l periods "without jeopardising the financial economy of the Dominion."

in a general review ol the year the directors state that general business activity and the demand for imports continued at a high level, despite th-? reduction in the total value ol exports and a considerable not outflow oi capital. Notwithstanding the expansion of credit represented by an increase of over £l4 000.000 in Reserve Bank accommodation to the State (including the increase of £2,300.000 in advances to the Primary Products Marketing Department) , commodity prices remained relatively stable throughout the year. “Now that the surplus sterling reserves have been practically exhausted however," the report states, “and the Reserve Bank has been relieved of the obligation to pay its notes in sterling, a different situation presents itself. No longer will it be possible for credit created by the bank io find an outlet to any appreciable extent in the purchase of goods from overseas (except by using the bank's statutory reserves for that purpose.) "While the demand for, commodities was being partially satisfied by the utilisation of lite Dominion's available sterling reserves, the effect of the expansion of credit on internal prices was not very great: but. in existing circumstances, any additional credit expansion would inevitably tend to cause, sooner or later, a general rise in prices, with a consequent diminution in the value of all savings, wages, salaries. and pensions. “The board would therefore stress the desirability of avoiding further recourse to the Reserve Bank for accommodation and of limiting governmental expenditure to such as sum ascan be raised by taxation, in addition to what can be borrowed from the public, either in the Dominion or overseas. If such a policy were adopted, and, still further, if steps were taken to reduce the outstanding advances from the bank, there would be a better prospect of ths bank being able to assist by granting accommodation during relatively unsatisfactory export periods, without jeopardising the financial economy of the Dominion.”