RESERVE BANK OF NEW ZEALAND ANNUAL REPORT OF THE BOARD OF DIRECTORS AND STATEMENT OF ACCOUNTS FOR THE YEAR ENDED THE 31st MARCH, 1943

Appendix to the Journals of the House of Representatives, 1943 Session I, B-16

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1943 NEW ZEALAND

RESERVE BANK OF NEW ZEALAND ANNUAL REPORT OF THE BOARD OF DIRECTORS AND STATEMENT OF ACCOUNTS FOR THE YEAR ENDED THE 31st MARCH, 1943

Presented to both Houses of the General Assembly, pursuant to Section 20 of the Reserve Bank of New Zealand Amendment Act, 1936

ANNUAL REPORT To the Hon. the Minister of Finance. The Board of Directors presents hereunder the report on the operations of the Reserve Bank during the financial year ended the 31st March, 194-3. The net profit for the year, after making provision for depreciation and contingencies, amounted to £379,118 lis. Id. This amount has since been paid into the Public Account to the credit of the Consolidated Fund. Major changes in the balance-sheet figures as at 31st March, 1943, as compared with those of the previous year were as follows : — Liabilities Bank Notes Throughout the year notes in circulation continued their upward movement, and at the balance date the total of notes outstanding was £6,245,699 10s. higher than at 31st March, 1942. Expansion of notes in circulation is not confined to New Zealand, and is in the main attributable to the war. So far as New Zealand is concerned, the following factors have all contributed in varying degree : full employment, high wages and overtime, the pay of the Services, and the presence of American troops in New Zealand. The fact that a large proportion of the American troops stationed in New Zealand are paid in United States dollars has brought about a large increase in the work of the banking office. Assets Sterling Exchange Although the increase since 31st March, 1942, is only £485,270 as at 31st March, 1943, the following table shows clearly how, throughout the year, the Bank's holdings of sterling were largely in excess of the previous year's figures. The decrease shown in March was due to the Bank providing sterling for the Government to enable approximately £8,000,000 sterling due under the Memorandum of Security to be repaid :—

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Last Monday in Month. £(N.Z.) Last Monday in Month. £(N.Z.) 1941 1942 April .. .. .. 20,515,776 April .. .. .. 20,614,438 May .. .. .. 21,240,184 May .. .. .. 22,774,577 June .. .. .. 19,967,001 June .. .. .. 24,722,575 July .. .. .. 15,582,660 July .. .. .. 24,668,845August .. .. .. 15,090,850 August .. .. .. 25,219,709 September .. .. .. 14,747,969 September .. .. .. 26,610,331 October .. .. .. 11,528,333 October .. .. .. 25,827,387 November .. .. .. 11,044,531 November .. .. .. 26,454,990' December .. .. .. 13,293,676 December .. .. .. 26,573 999 1942 1943 January .. .. .. 13,757,244 January .. .. .. 28,751,671 February .. .. .. 19,498,715 February .. .. 31,262,642 March .. .. .. 18,344,282 March .. .. .. 22,230,554

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Advances To the State or State Undertakings : — (i) Marketing Department: Advances under this heading show a decline of approximately £3,500,000, the amount outstanding at 31st March, 1943, being £4,219,613 3s. 2d. The average advance to the Department throughout the year was approximately £5,840,000, which was slightly higher than the 1942 average of approximately £5,735,000. (ii) Other' Purposes : The figure of £31,135,000 as at 31st March, 1943, is £9,135,000 greater than the amount advanced under this heading at 31st March, 1942. The rates for accommodation remained unchanged throughout the year as follows Per Cent. Marketing Department — P er Annum. First £5,000,000 .. .. •• •• •• •• 1 Thereafter .. • ■ • • • • • • • • ■ ■ If General Purposes Treasury Bills — First £5,000,000 .. .. ■ • • • ■ ■ • • • • 1 Thereafter .. .. • • ■ ■ • • • • H Investments The large increase of £6,148,607 in the Bank's investments is due almost entirely to the taking-up by the Bank of Government Stock to enable the payment by the Government under the Memorandum of Security to be made. Discount Rate The minimum rate for the discounting of approved bills of exchange has remained unchanged since 26th July, 1941, at I i per cent. Exchange Rate No alteration was made in the Bank's official buying rate for sterling, and no official selling rate was quoted. Management op Public Debt During the year under review two War Loans were issued and in each case were over-subscribed. A new feature of both these loans was the introduction of the acceptance of advance subscriptions. This is an arrangement whereby, some months prior to the opening of the next War Purposes Loan, the Bank accepts subscriptions to be applied to the purchase of Stock in accordance with the terms of the prospectus when issued. Applications are accepted for amounts of £10 or multiples thereof. Applicants are required to specify whether long- or short-dated Stock is desired, but provided written notification is given to the Reserve Bank not later than seven days after the opening date of the particular loan, applicants may switch from long- to short-dated Stock, or vice versa, or they may withdraw their subscriptions. Subscriptions which are withdrawn do not bear interest, but otherwise interest accrues at the rate specified in the prospectus as from the original date of lodgment of the subscription. Liberty Loan On the 27th February, 1942, the Bank announced that it would receive advance subscriptions for the next War Purposes Loan, applications to be in accordance with the scheme as set out above. On 4th May the Bank issued the prospectus of the Liberty Loan, which, for convenience of reference, subsequently became known as the Ist Liberty Loan, to distinguish it from the 2nd Liberty Loan, issued later in the year. The prospectus offered £15,000,000 for public subscription in the following Stocks : 2|-per-cent. 1947 Stock; 3-per-cent. 1952-55 Stock. In addition, for the convenience of small subscribers, Liberty Bonds were also available. These Bonds, which could be purchased at £1 each, will be redeemed after seven years at £1 4s. each, representing interest compounded for the period at approximately £2 16s. per cent., less social and national security taxes thereon. When the loan closed on 3rd June, 1942, a total of £17,675,000 had been subscribed, made up as follows :— Applications. Amount. £ 2i-per-cent. 1947 Stock .. .. ■ • 14,875 6,303,000 3-per-cent. 1952-55 Stock .. .. •• 15,163 11,060,000 Liberty Bonds .. .. •• •• 312,000 £17,675,000 As no record was available of individual purchasers of Liberty Bonds, no actual figure can be given of the number of people who purchased these Bonds, but it is probable that the figure was in excess of 60,000. Advance subscriptions to this loan totalled £1,952,560 after allowing for withdrawals amounting to £1,650.

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2nd Liberty Loan The prospectus for the 2nd Liberty Loan was issued on the 12th October, 1942. Ten million pounds was invited for subscription, and the following Stocks were offered : 2|-per-cent. 1948 Stock; 3-per-cent. 1953-56 Stock. No issue of £1 Bonds was made. The loan closed on the 14th November, 1942, and was over-subscribed by £416,000, Subscriptions were as follows : — , Applications. Amount. 2|-per-cent. 1948 Stock .. .. .. 12,906 1,891,000 3-per-cent. 1953-56 Stock .. .. .. 12,119 8,525,000 25,025 £10,416,000 Advance subscriptions totalled £2,678,810, or over 25 per cent, of the total amount of the loan. The organzation set up to raise these loans was on a national basis, and War Loan Committees were formed throughout the country. The Board desires to place on record its appreciation of the excellent work performed by these Committees, by the National Savings Organization, and by the many organizations, the press, and individuals throughout New Zealand whose efforts played such a substantial part in the success achieved. Exchange Control The procedure of licensing of overseas trade during the year was not altered, but the operations of Lend-Lease and Reverse Lend-Lease have to be taken into account when considering the table shown below. The large quantities of Lend-Lease imports which have come into the country do not involve disbursements of overseas funds, and conversely, large quantities of goods which might normally have been exported have been made available under the Reverse Lend-Lease arrangement to the United States for their troops in the Pacific and New Zealand. The administration of the Finance Emergency Regulations 1940 (No. 2) has continued to operate smoothly. Owing to the presence in New Zealand of American troops, the Bank authorized suppliers of goods and services to accept United States dollar notes, and announced the rates of conversion into New Zealand currency. Although the majority of the public complied with the official rates, it became evident that some transactions were taking place at unofficial rates. The Bank therefore issued a warning that the official rates must be observed. Action has been taken with regard to subsequent breaches, and penalties incurred by the persons concerned. The, following table gives a classification of foreign exchange transactions for the years ended 31st March, 1941, 1942, and 1943 : —

Summary of Transactions

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(£(N.Z.)000.) Year ended 31st March, Year ended 31st March, Receipts. Payments. 1941. 1942. 1943. 1941. 1942. 1943. In respect of — In respect of— Exports .. .. .. 173,302 72,774 80,885 Imports, excluding payments 42,015 39,623 33,103 Interest, dividends, legacies, 4,220 4,231 4,339 in respect of Government immigrants' funds, repatri- imports and in respect of ated capital, and private goods imported prior to debts due in New Zealand introduction of licensing Trade debts due in New Zea- 3,443 2,897 3,687 system land, including overseas earn- Interest, dividends, legacies, 3,935 3,782 3,643 ings of New Zealand firms emigrants' funds, repatriCommissions, royalties, and 120 166 252 ated capital, and private insurance debts due overseas Donations and allowances . . 382 431 290 Trade debts due overseas, 2,759 2,294 3,445 Travellers' expenses .. 280 268 493 including earnings in New Receipts on account of Ameri- .. .. 5,057 Zealand of overseas firms can Authorities and personnel and payments in respect of Receipts by High Commissioner . . .. 599* goods imported prior to in London introduction of licensing Unclassified .. .. 965 504 395 system Government debt and other 19,628 34,501 46,981 services, including payments in respect of imports Local-body-debt services .. 3,635 1,800 2,013 Commissions, royalties, and 538 549 922 insurance Donations and allowances .. 622 606 565 Kim hire and entertainments 343 226 794 Travellers' expenses .. 274 198 72 American Authorities and per- .. .. 1,832 sonnel Unclassified .. .. 15 82,712 81,271 95,997 73,764 83,579 93,370 * Previously included in " Unclassified."

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Trading Banks The position of the trading banks as shown by the main items in their monthly returns has been as follows :—

Assets

Liabilities in New Zealand

On the assets side of the balance-sheet the movement during the past year in deposits at the Reserve Bank showed relatively slight fluctuations during 194:2 ; hut a fall of over £6,000,000 from £25,822,000 to £19,682,000 occurred between February and March, 1943. The trading banks' holdings of Reserve Bank notes, too, showed little change throughout the year, there being a net increase of £217,000 over the figure of £3,955,000 for March, 1942. The total holdings of cash in New Zealand, comprising deposits at the Reserve Bank, holdings of Reserve Bank notes, and gold and coin, amounted to £24,446,000 at March, 1943, as compared with the figure of £20,938,000 for March, 1942. Net overseas assets showed a general rising tendency, the figure for March, 1943, of £14,852,000showing a net increase of £2,319,000 for the year. The holdings of Government securities showed a consistent rise throughout the year. This item, which stood at £36,166,000 at the end of March, 1943, showed the greatest relative percentage increase: for the year (52-4 per cent.) over the corresponding March, 1942, figure of £23,733,000.

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(£(N.Z.)000.) Deposits at Reserve Total Cash Net 0ver . Governm ent Ad J^° eS Last Monday in Month. Reserve Bank m New seas Assets. Securities. °. Bank. Notes. Zealand. Discounts. 1942 MflTPh 16,218 3,955 20,938 12,533 23,733 49,629 A „ ril 20,274 3,892 24,896 13,150 23,848 47,444 JL " .. 20,404 3,953 25,053 13,657 25,877 44,423 jjl " 16,666 4,060 21,378 12,597 27,242 44,321 Tu]v 19,059 4,048 23,729 13,448 27,243 42,671 AuLt " .. 20,931 3,824 25,383 13,822 27,852 42,149 September " . .. 21,410 4,216 26,275 13,818 30,049 42,403 Sober " .. 21,050 4,036 25,651 14,143 30,254 43,570 November " .. .. 18,730 4,298 23,619 13,596 30,301 44,575 December •• ( •• •• 18.431 3,766 22,633 14,007 34,317 43,983 January .. .. 22,692 5,054 28,362 .13,741 35,317 43,089 February " .. .. 25,822 4,845 31,281 15,313 36,330 41,271 March ' . 19,682 4,172 24,446 14,852 36,166 44,931

(£(N.Z.)000.) Demand Time Total Demand and Last Monday in Month. Liabilities. Liabilities. Time Liabilities. 1942. March •• •• 61,525 28,420 89,945 April •• 62,529 28,632 91,161 May ■• 63,815 28,309 92,124 j U ne .. 60,382 28,083 88,464 July .. .. 62,383 27,971 90,354 August ■■ ■• 63,848 28,638 92,486 September 65,781 28,788 94,569 October •• 66,017 28,832 94,850 November 65,587 28,799 94,386 December .. ,. ., 70,919 28,769 99,688 1943. January 74,663 28,398 103,061 February .. .. 79,030 28,528 107,558 March ..77,139 28,559 105,698

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A general fall, however, in advances and discounts was shown throughout the year, the figure for March, 1943, of £44,931,000 being £4,698,000 lower than the March, 1942, figure of £49,629,000 ; this net decrease is Comparable with that for the financial year 1941-42. The percentage of advances and discounts to total demand and time liabilities fell from 55-2 per cent, as at March, 1942, to 42-5 per cent, as at March, 1943. On the liabilities side the figure for demand liabilities showed a steady rise throughout the year, the figure for March, 1943, of £77,139,000 being 25-4 per cent., or £15,614,000, greater than that for March, 1942. In the year under review the movement in time liabilities, as that for the year 1941-42, was again very slight, a net change of £139,000 increase being shown. Total demand and time liabilities rose from £89,945,000 in March, 1942, to £105,698,000 in March, 1943.. The highest figure ever recorded £or this item was £107,558,000 for February, 1943. Wartime Changes in Money Supply As shown by the following table, the total amount of money —i.e. immediately available spendingpower—in the form of coin and notes in active circulation and bank demand deposits has increased by £(N.Z.)67,000,000, or 123 per cent., between the outbreak of war in September, 1939, and 31st March, 1943.

Money Supply in New Zealand (1939-43)

The increase in money is due to two main causes, viz.— (a) Receipts from overseas in excess of payments overseas. (b) Expansion of bank credit. The former accounted for £(N.Z.)28-5 m. of the increase, as evidenced by the rise in the Reserve Bank's sterling exchange from £(N.Z.)5-3 m. to £(N.Z.)22-2 m. and the rise in the trading banks' net overseas assets from £(N.Z.)3-3 m. to £(N.Z?)I4-9 m. 'Expansion of bank credit during the period totalled £(N.Z.)36-2 m., including an increase of £(N.Z.)18-3 ni, in the advances and investments of the Reserve Bank, and of £(N.Z.)17-9 m. in the combined advances and investments of the trading banks, whose holdings of securities (mainly Government) rose by £(N.Z.)26-6 m., while their advances fell by £(N.Z.)B-7 m. The diversion of productive capacity, resources, and man-power to the war effort has inevitably resulted in a reduced supply of goods and services available for civilian use. At the same time as revealed by the above figures, the supply of money has been substantially increased. The maintenance of economic stability therefore depends to a very important extent not only on the avoidance as far as practicable, of any further expansion of bank credit, but also on the transfer of a large proportion of immediate spending-power from the public to the Government for war purposes. Staff The Board desires to place on record its deep regret at the loss of Pilot Officer S. S. Mitchell, a member of the Bank's staff who made the supreme sacrifice whilst on active service in the Middle East with the Royal Air Force. At the 31st March, 1943, thirty-five members of the staff were on active service with His Majesty's Forces. Of this number, six were serving in the Navy, twenty in the Army, and nine in the Air Force. The work of the staff, both permanent and temporary, has been maintained at a high level. War conditions have brought about many problems and much extra work, and the Board has pleasure in again recording its appreciation of the response by the staff to the calls made on them during the year. For and on behalf of the Board of Directors : W. F. L. Wabd, Acting-Governor. E. C. Fussell, Deputy Governor. 30th June, 1943.

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(£(N.Z.) Millions.) Category. CT ' 1943.' Increase. Coin held hy public (estimated) .. .. .. 1-5 2-3 +0-8 Notes held by public .. .. .. .. .. 13-4 26-1 +12-7 Government deposits (Reserve Bank) .. .. .. 1-8 15-6 +13-8 Other demand liabilities (Reserve Bank) .. .. 0 - 3 0-4 +0-1 Demand deposits (Trading Banks) .. .. .. 37-4 77-1 +39-7 Total .. .. .. ..' .. 54-4 121-5 +67-1

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RESERVE BANK OF NEW ZEALAND Profit and Loss Account for the Year ended 31st March, 1943 r,r £ s. d. Or. . . , £ s ' d ' «» "aßMSsfra?. cost 01 ' ii« ii i and for sundry liabilities and contmBalance, being profit for year .. .. u .. 529,319 14 9 £529,319 14 9 £529,319 14 9 Profit and Loss Appropriation Account n £ s. d. Cr, d* Payments to New Zealand Government Balance as at Ist April, 1942 •• • • J® j' in terms of section 36 of Reserve Bank Balance from Profit and Loss Account .. d 7 9,118 i l of New Zealand Act, 1933 .. • • 350,241 19 9 Balance 379,118 11 1 £729,360X0 10 £729,360 10 10 Balance-sheet as at 31st March, 1943 Liabilities £ s - d. Assets 10 *0 General Reserve Fund .. .. 1,500,000 0 0 Gold (at face value) .. .. 2,801,877 10 0 Banknotes 30,390,753 10 0 .. ;; 19,021,77b 5 5 8 •• 15,564,794 15 4 Advances to the State or State undertb) Banks " - 20,128,898 11 7 takings— o Other 741,801 6 0 (1) Marketing Department .. 4,219,613 3 2 Liabilities in currencies other than New (2) For other purposes .. ' ' tSSSSr :: :: i SSSS 'S;S!2 » gsaiw, «.»»» 1 rency at the rate of £100 sterling equals £124(N.Z.). £70,004,604 11 10 £70,004,604 11 10 W. F. L. Ward, Acting-Governor. E. C. Fussell, Deputy Governor. W. R. Eggers, Chief Accountant. Auditors' Certificate and Report.—We have audited the balance-sheet as at 31st March, 1943, above set forth and have obtained all the information and explanations we have required. We have accepted the certificate of the Bank of England as to assets held on account of the Reserve B<Hl OTinfonThe balance-sheet is properly drawn up so as to exhibit a true and correct view of the state of the affairs of the Bank as at 31st March, 1943, according to the best of our information and the explanations given to us and as shown by the books of the Bank. D. G. Johnston\p u y ic Accountants, Auditors. J. L. Griffin J Wellington, New Zealand, 30th June, 1943.

Approximate Cost of Paper.—Preparation, not given ; printing (503 copies), £12.

By Authority: E. V. Paul, Government Printer, Wellington. 1943.

Price 6d.]

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