RESERVE BANK OF NEW ZEALAND ANNUAL REPORT OF THE BOARD OF DIRECTORS AND STATEMENT OF ACCOUNTS FOR THE YEAR ENDED THE 31st MARCH, 1948

Appendix to the Journals of the House of Representatives, 1948 Session I, B-16

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1948 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, 1948

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 Right Hon. the Minister of Finance. The Board of Directors presents hereunder the report on the operations of the Reserve Bank of New Zealand during the financial year ended 31st March, 1948. PROFITS The net profit for the year after making provision for depreciation and contingencies amounted to £(N.Z.)645,593 Bs. Bd. This amount has since been paid into the Public Account to the credit of the Consolidated Fund. BALANCE-SHEET The principal changes in the Balance-sheet as at 31st March, 1948, compared with that of the previous year were as under: — Liabilities Bank Notes The increase during the year of £(N.Z.)1,679,400 in notes outstanding, from £(N.Z.)46,878,128 on 31st March, 1947, to £(N.Z.)48,557,528 on 31st March, 1948, represents a slowing down in the rate of increase compared with recent years, as is shown by the following table : Notes issued as Increase, at 31st March. £(N.Z.). £(N.Z.). 1939 .. .. .. 15,246,971 1940 .. .. .. 18,284,757 3,037,786 1941 .. .. .. 21,440,823 3,156,066 1942 .. .. .. 24,145,054 2,704,231 1943 .. .. .. 30,390,754 6,245,700 1944 .. .. .. 36,254,495 5,863,741 1945 .. .. .. 40,201,306 3,946,811 1946 .. .. .. 43,489,031 3,287,725 1947 .. .. .. 46,878,128 3,389,097 1948 .. .. .. 48,557,528 1,679,400

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The effective note circulation —that is, notes in the hands of the public—was £(N.Z.)4O-757 millions on the 31st March, 1948, an increase of £(N.Z.)M24 millions for the year. The effective note circulation by denominations on the 31st March, 1948, compared with the 31st March, 1947, was as follows :

(£(N.Z.)000)

Demand Liabilities (a) State. —Total deposits held by the Bank under this heading showed an increase of £(N.Z.)O-31 millions, from £(N.Z.)22-84 millions on 31st March, 1947, to £(N.Z.)23-15 millions on 31st March, 1948. (b) Banks. —The total deposits held bv the trading banks at the Eeserve Bank declined by £(N.Z.)7-44 millions, from £(N\Z.)S4-54 millions on the 31st March, 1947, to £(N.Z.)47-10 millions on the 31st March, 1948. This decrease is due in the main to large purchases of sterling from the Reserve Bank. Although the proceeds of wool exported during the year were received direct by the banks, these purchases were necessary to enable them to finance the greatly increased volume of imports which came into New Zealand during the year. Further reference to imports will be found later in this report. The decline in the trading banks' deposits would have been greater but for the fact that as a matter of Government policy their holdings of New Zealand Government stocks maturing 15th September, 1947, which amounted to £(N.Z.)2,691,600, were repaid on due date. Since they were not permitted to reinvest in Government stocks, their accounts at the Reserve Bank were credited with this amount. No alteration was made to the statutory minimum balances which the trading banks are required to hold at the Reserve Bank—namely, 7 per cent, of their demand liabilities and 3 per cent, of their time liabilities in New Zealand. The statutory minimum balances as on the 31st March, 1948, amounted to £(N.Z.)II-1 millions. Assets Sterling Exchange On the 31st March, 1948, holdings of sterling exchange totalled £(N.Z.)69,442,400, compared with £(N.Z.)85,847,760 on the 31st March, 1947, a decrease of £(N.Z.)I6-41 millions. The average holding throughout the year was approximately £(N.Z.)7 millions less than the average for the previous year. The banking system's holdings of foreign exchange are dealt with later in this report.

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— 31st March, 1947. 31st March, 1948. Increase. Per Cent. 10s. . ; 1,143 1,171 2-4 £1 . : 9,422 9,434 0-1 £5 . ! 22,486 23,117 2-8 £10 4,218 4,687 1M £50 2,001 1,987 - 0-7 Trading bank notes outstanding . j 363 361 — 0-6 39,633 40,757

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Advances to the State or State Undertakings (1) Marketing Organizations. —Advances to these organizations at balance date totalled £(N.Z.)3,742,380. The average amount outstanding during the year on a weekly average basis was £(N.Z.)I-499 millions, an increase over the average amount outstanding during the previous year of £(N.Z.)O-433 millions. During the year, consequent upon the passing of the Dairy Products Marketing Commission Act, 1947, the responsibility for marketing New Zealand butter and cheese passed from the Primary Products Marketing Department to the Commission set up by this Act. Overdraft accommodation is made available by the Bank to the Dairy Products Marketing Commission at the rate of 1 per cent, per annum, which rate is now applicable to the other marketing organizations. Previously 1£ per cent, per annum was charged on any advance in excess of £(N.Z.)5,000,000. It was mentioned in last year's report that credit balances in individual marketing accounts were set off for interest purposes against advances in other marketing accounts. This still applies to accounts controlled by the Marketing Department, but does not apply to accommodation granted to the Dairy Products Marketing Commission, the reason being that the Commission is a statutory body (with separate entity) dealing with dairy products and has no direct connection with the marketing organization administered by the Marketing Department. (2) Other Purposes. —The amount outstanding on the 31st March, 1948, was £(N.Z.)3B millions, an increase of £(N.Z.)2 millions compared with the total of £(N.Z.)36 millions on the 31st March, 1947. During the year the Bank continued to take up New Zealand Government Treasury bills at the same rate of discount as was applicable last year—namely, 1 per cent. In addition, pursuant to the power given by section 21 of the Finance Act, 1946, the Bank granted temporary accommodation from time to time during the year by way of overdraft to the Government at the rate of 1 per cent, per annum. At 31st March, 1948, however, no overdraft was current. Other Advances Loan to the Government of the French Republic. —It was mentioned in last year's report that the Bank had been empowered under section 4 of the Finance Act (No. 2), 1946, upon such terms and conditions as might be approved by the Minister of Finance, to advance sums from time to time up to an aggregate of £(N.Z.)IO millions outstanding at any one time to the Governments of other countries in respect of the purchase of any New Zealand produce for export to those countries. On the 2nd July, 1947, an agreement was signed between the Government of New Zealand and the Government of the French Republic under which the Reserve Bank of New Zealand, acting on behalf of the Government of New Zealand, was authorized to make available to the Government of the French Republic a credit amounting to £(5tg.)5,000,000. Investments Investments increased from £(N.Z.)3-87 millions on the 31st March, 1947, to £(N.Z.)7-87 millions on the 31st March, 1948. This increase was due to the Bank taking up £(N.Z.)4 millions of a special issue of New Zealand Government stock maturing 15th March, 1962, which was issued in New Zealand in connection with the repayment in November, 1947, of the New Zealand Government loan domiciled in London of £(N.Z.)14,027,000.

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DISCOUNT RATE The minimum rate for the discounting of approved bills of exchange remained unaltered at 1J per cent. —this rate has remained unchanged since the 26th July, 1941. EXCHANGE RATE The Bank's official buying rate for sterling, which was fixed at £(N.Z.)124 = £(stg.)loo on the Ist August, 1934, in accordance with the terms of section 16 (3) of the Reserve Bank of New Zealand Act, 1933, remained unchanged. Since the suspension in 1938 of the Bank's obligation to redeem its notes in sterling,. no official selling rate has been quoted. No alteration was made during the year in the rates quoted by the trading banks for buying and selling sterling. These rates will be found in an Appendix to this report. MANAGEMENT OF PUBLIC DEBT IN NEW ZEALAND The following loans matured during the year : £(N.Z.). 2| per cent 15th September, 1947, totalling .. .. 4,763,810 4 per cent. 15th September, 1947, totalling .. .. 3,249,250 5 per cent. 15th September, 1947, totalling .. .. 224,700 £(N.Z.) 8,237,760 Of the latter loan, £(N.Z.)75,300 was repayable in Australia and £(N.Z.)149,400 in England. The holders were repaid at maturity on the 15th September, 1947. As mentioned earlier in this report, as a matter of Government policy the trading banks were not given the option of conversion of their holdings in these loans, and they were also repaid on maturity. Other holders totalling £(N.Z.)5,618,990 were given the option of repayment or conversion into the then current tap issue of 3 per cent, stock maturing on the 15th July, 1962-64. The total amount dealt with was £(N.Z.)8,237,760, of which £(N.Z.)3,044,275 was reinvested in the tap issue by 1,340 holders. The balance of £(N.Z.)5,193,485, representing 13,558 holders, was redeemed on the 15th September, 1947. Over-counter Issues (1) When the over-counter issue of 3 per cent, stock maturing 15th July, 1962-64, was closed on the 15th December, 1947, 4,256 applications had been received for a total of £(N.Z.)18,746,572. (2) On the 19th January, 1948, the Bank issued a prospectus inviting applications for 3 per cent, stock at par maturing 15th July, 1963-65. Results to the 31st March, 1948, were as follows : Applications .. .. .. .. 698 Amount issued .. .. .. .. £(N.Z.)3,525,240.

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EXCHANGE CONTROL The following table gives a classification of overseas exchange transactions for the years 31st March, 1945, to 1948, inclusive :

Summary of Transactions (£(N.Z.)000)

On the receipts side proceeds of exports showed a large increase of £(N.Z.)2i-4 millions compared with the previous year. This increase was due mainly to increased prices for our primary products exported, but another material factor was an increase in volume—chiefly meat and wool. Under the heading of " Interest, dividends, legacies, immigrants' funds, &c. : ', an increase of approximately £(N.Z.)4-5 millions was recorded for the year. One of the reasons for this increase was the receipt of overseas capital for investment in New .Zealand.

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Year ended 31st March, 1945. | 1946. I 1 I 1947. 1948. Receipts In respect of— Exports Interest, dividends, legaeies, immigrants' funds, repatriated capital, and private debts in New Zealand Trade debts due in New Zealand, including overseas earnings of New Zealand firms Commissions, royalties, and insurance Donations and allowances Travellers' expenses Receipts on account of American authorities and personnel Receipts by High Commissioner in London .. 85,287 5,861 4,205 295 424 272 5,974 28,559 108,521 8,129 5,388 441 ' 669 713 1,725 16,211 112,911 14,459 5,478 546 481 624 3,593 10,278 134,274 18,976 8,507 813 816 844 i 8,529 130,878 141,797 148,369 172,760 Year ended Slst March, 1 1945. 1 1946. J 1947. 1948. Payments In respect of — Imports, excluding payments in respect of Government imports Interest, dividends, legacies, emigrants' funds, repatriated capital, and private debts due overseas Trade debts due overseas, including earnings in New Zealand of overseas firms Government debt and other services, including payments in respect of imports Local-body-debt services Commissions, royalties, and insurance Donations and allowances Film hire and entertainments Travellers' expenses American authorities and personnel 30,927 4,741 1,497 48,063 1,539 719 675 508 191 4,458 36,139 5,746 1,881 87,344* 1.140 627 1.141 544 496 1,014 69,669 7,952 2,538 44,389 1,381 659 | 1,351 579 1,735 1 30 ! 121,996 .8,713 4,497 45,853 508 984 1,531 566 2,390 93,317 136,071 130,281 187,039 * Includes £22,721,250 payment under memorandum of security.

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On the payments side the increase of £(N.Z.)52 millions under the heading of " Imports "is the most outstanding feature of the whole table. The issue of import licences in the 1947 licensing period on proof of availability of goods was largely responsible for this increase. The total figures for the year disclose that payments exceeded receipts by £(N.Z.)I4-3 millions. There has been no'marked change during the year under review in the administrative procedure of the Exchange Control Regulations covering overseas trade, funds, and securities. As a result of the dollar crisis in August, 1947, more severe restrictions have been placed on the expenditure of dollars. TRADING BANKS The following combined figures are compiled from the monthly returns furnished by the trading banks to the Reserve Bank in accordance with statutory requirements :

Assets (£(N.Z.)000)

Liabilities in New Zealand (£(N.Z.)000)

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Last Wednesday in Month. Deposits at Reserve Bank. Reserve Bank Notes, Total Cash in New Zealand.* Net Overseas Assets. Government Securities. Advances and Discounts. 1947 March 53,903 7,335 62,199 14,602 21,058 73,011 April 60,196 7,082 68,211 10,789 21,057 75,319 May 63,172 7,216 71,308 10,497 21,057 75,196 June 62,391 7,142 70,423 12,425 21,057 73,913 July 59,900 6,852 67,642 15,118 21,057 75,815 August 58,425 7,070 66,374 12,115 21,057 76,908 September 55,148 7,213 63,245 13,280 18,592 78,774 October 55,191 7,694 63,738 12,845 18,593 82,356 November 52,520 7,931 61,416 13,872 18,593 83,208 December 49,877 9,195 59,890 12,632 18,593 86,984 1948 January 54,340 8,437 63,977 14,331 18,593 86,740 February 57,688 8,182 67,091 16,719 18,593 86,612 March 46,995 7,801 56,316 15,864 18,593 93,788 * Includes deposits at Reserve Bank, notes, and coin.

Last Wednesday in Month. Demand Liabilities. Time | Liabilities. Total Demand and Time Liabilities. 1947 March 126,791 35,396 162,186 April .. .. .. 128,855 35,989 164,844 May .. .. .. 131,549 36,256 167,805 June .. .. .. 131,771 37,187 168,957 July 129,051 37,989 167,040 August 126,950 39,209 166,159 September 126,897 40,219 167,116 October.. 125,571 40,934 166,505 November 126,915 40,823 167,739 December 1 Q A Q 128,219 39,716 167,934 January 134,451 39,143 173,594 February 141,832 38,261 180,092 March 142,348 39,098 181,446

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The total demand and time liabilities of the trading banks have reached a record level and the proportion of time liabilities to demand liabilities is abnormally low. The trading banks' investments in Government securities declined during the year by £(N.Z.)2-465 millions as a result of the repayment of stock referred to earlier in this report. In March, 1939, the banks' holdings of Government stock were £(N.Z.)10,063,000. They rose to a peak of £(N.Z.)36,330,000 in February, 1943. Successive redemptions of maturing stock have reduced these holdings to £(N.Z.)18,593,000. The trading banks' advances and discounts increased by £(N.Z.)2Q,777,000 during the year to a total of £(N.Z.)93,788,000 on the 31st March, 1948. The Reserve Bank's supervision of certain classes of trading bank advances has continued in accordance with the Government's policy. During the year it became apparent that there were misunderstandings as to the scope and nature of the control. Accordingly the Bank issued a statement outlining these aspects of the restriction policy. A copy of this statement is appended to this report. The following analysis of the trading banks' advances shows that a large proportion of the increased advances was required to finance merchants, wholesalers, and retailers in the building-up of stocks required to meet the shortages which developed during the war period and the early months of reconversion. Substantial increases were recorded also in advances to manufacturing and productive industries other than those associated with meat and dairy production.

Classification of Trading Banks' Advances as at the last Balance Day in March (£(N.Z.)000)

NET OVERSEAS ASSETS* On the last Wednesday in March, 1947 (26th March), the net overseas assets held by the New Zealand banking system on account of New Zealand business totalled £(N.Z.)99-5 millions, while on the last Wednesday in March, 1948 (31st March), the figure had fallen to £(N.Z.)B4-9 millions, a decrease of £(N.Z.)I4-6 millions during the year, reflecting the excess of payments over receipts shown in the exchange control table on page 5 of this report.

* Reserve Bank's sterling exchange less overseas liabilities plus trading banks' net assets overseas in respect of New Zealand business.

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— 1945. 1946. 1947. 1948. Farmers 18,721 19,307 21,628 20,030 Dairy companies, freezing-works, &c. 8,170 8,582 8,847 8,255 Other manufacturing and productive industries .. 8,611 8,867 12,968 20,158 Merchants, wholesalers— (a) Mainly importers .. .. .. 1,976 2,455 4,262 7,962 (6) Others 1,164 919 1,402 4,924 Retailers 2,790 3,071 4,645 9,505 Transport 684 875 1,250 1,752 All others 12,785 13,724 17,637 19,933 Total advances 54,902 57,801 72,637 92,520

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AMOUNT OF MONEY The table below shows the changes in the total amount of money in the form of coin, notes, and bank demand deposits during recent years :

Amount of Money in New Zealand in the Form of Coin, Notes, and Bank Demand Deposits* (£(N.Z.)millions)

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— Coin. Notes. Trading Bank Demand .Liabilities. Government Deposits at Reserve Bank. Other Demand Liabilities Reserve Bank.f Total Amount of Money. Annual Increase. Last . Monday in March— 1939 1-38 11-18 38-45 3-82 1-03 55-9 0-6 1940 1-62 14-84 46-64 6-78 0-11 70-0 14-1 1941 1-69 17-16 53-68 6-27 0-93 79-7 9-7 1942 1-85 20-18 61-52 13-46 0-21 97-2 17-5 1943 2-23 26-18 77-14 15-56 0-37 121-5 24-2 1944 2-47 31 • 19 85-09 18-09 0-89 137-7 16-3 1945 2-62 34-19 93-66 16-80 0-69 148-0 10-2 1946 2-89 36-64 110-92 29-21 0-79 180-5 32-5 1947(Wednesday) 3-04 39-63 126-79 17-43 0-55 187-4 6-9 1948(Wednesday) 317 40-76 142-35 23-15 0-58 210-0 22-57 Last Wednesday of month— 1947— March 3-04 39-63 126-79 17-43 0-55 187-4 April 3-01 j 39-89 128-86 12-90 0-32 185-0 May 3-03 39-79 131-55 11-73 0-53 186-6 June 3-10 39-84 131-77 9-71 0-36 184-8 July 311 40-33 129-05 10-57 0-50 183-6 August 3-11 40-35 126-95 10-11 0-36 180-9 September .. 3-12 39-92 126-90 9-79 0-44 180-2 October 312 40-03 125-57 9-59 0-37 178-7 November .. 3-13 40-12 126-92 11-20 0-59 181-9 December .. 3-32 42-79 128-22 11-13 0-50 186-0 1948— January 3-29 40-91 134-45 12-56 0-92 192-1 February .. 3-27 40-51 141-83 17-87 0-43 203-9 March 3-17 40-76 142-35 23-15 0-58 210-0 * Excluding deposits held at savings-banks. f Excluding balances held by the trading-banks.

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In March, 1948, the total amount of money in circulation in New Zealand in the form of coin, notes, and bank demand deposits was £(N.Z.)154-16 millions more than in March, 1939, the increase since March, 1947, being £(N.Z.)22-57 millions. Causes of changes in the two periods 1939-48 and 1947-48 are shown in the following table :

Causes of Changes in the Amount of Money* (£(N.Z.)millions)

* For 1947 and 1948 the figures relate to last Wednesday in March ; the figures for 1939 relate to last Monday in March. f As shown by changes in Reserve Bank's sterling exchange plus overseas investments, and trading banks' assets overseas in respect of New Zealand business, less overseas liabilities in respect of New Zealand business. J Minus sign indicates shift from demand to time liabilities. The above table shows that over the whole period 1939-48 about half the increase in the amount of money in circulation was due to an excess of external receipts over external payments, resulting in a corresponding accumulation of New Zealand banking assets overseas and of bank deposits within New Zealand. From March, 1947, to March, 1948, external payments have exceeded external receipts by £(N.Z.)I4-59 millions; but although the net overseas assets of the banks fell by that amount, the consequent reduction in the amount of money in circulation in New Zealand was more than offset by an increase of £(N.Z.)34*31 millions in bank credit—namely, £(N.Z.)I6-2 millions by the Reserve Bank and £(N.Z.)IB-11 millions by the trading banks. During the past few years the non-availability of essential imports has resulted in an accumulation of foreign exchange, an increase in spending-power in New Zealand, and a relative shortage in the supply of goods. This has been one of the reasons for the adoption during wartime and the continuance after the war of various economic stabilization regulations. As imports become more readily available, the unbalanced monetary condition tends to adjust itself to the extent that the supply of goods in New Zealand is increased and the amount of money in circulation is reduced by drawing on existing bank deposits to pay for them. During the past financial year this adjusting process was counteracted by an expansion of bank credit partly by the Reserve Bank

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— 1 1939-48. | 1947-48. (a) Overseas transactions'!" 1 +78-68 -14-59 (b) Bank credit — (1) Reserve Bank advances +23-82 +12-20 (2) Reserve Bank investments in New Zealand + 1-18 + 4-00 (3) Trading bank advances and discounts +38-27 +20-78 (4) Trading bank investments in New Zealand +10-24 - 2-67 (5) Total bank credit ( (1) to (4) ) +(73-51) +(34-31) (c) Shift from time to demand liabilities of trading - 9-22 - 3-70 banks! {d) Other items +11-20 + 6-55 Total change +154-16 +22-57

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to meet Government requirements and partly by the trading banks to finance traders. manufacturers, farmers, and others. High levels of prices and of national income that are generated by abnormal conditions prevailing during and immediately after a war invariably produce an expansion of bank credit which, while it may itself be a contributory factor in raising prices, is largely a result rather than a cause of such increasesA sudden and drastic curtailment of bank advances might in these circumstances cause more harm than good and seriously retard the maintenance and improvement of trade, industry, and employment. Hence the necessity for a prudent and flexible bank advances control policy that checks undue expansion of credit but does not hamper sound business development. In assessing present and prospective economic conditions in New Zealand it is necessary to note whether and to what extent changes in spending-power as shown by the amount of money in circulation and the aggregate amount of private incomes are paralleled by changes in the supply of goods. Comparing the year 1938-39 with 1945-46, the latest year for which the information is available, the amount of aggregate private incomes rose from £(N.Z.)186 millions to £(N.Z.)327 millions, the value of farm production from £(N.Z.)B3 millions to £(N.Z.)116 millions, of factory production from £(N.Z.)3I millions to £(N.Z.)55 millions, and the total value of all production from £(N.Z.)136 millions to £(N.Z.)201 millions. In 1939 export receipts amounted to approximately £(N.Z.)65 millions; for the year ended the 31st March, 1948, they were £(N.Z.)134 millions. The great increases in production values and export receipts have been caused mainly by higher prices rather than by an expansion of production of actual goods, and the higher prices have had an important influence on aggregateprivate incomes. The movement in export and wholesale prices that has occurred during recent years is shown in the following table of official price statistics :

Price Index Numbers (Base:1926-30 =1000)

The relatively smaller rise in the wholesale prices of locally produced goods is some evidence of the effects of stabilization measures, which were able to exercise a restraining influence on costs and prices of local production, but which for obvious reasons could not control import prices. The changes that have taken place in the actual quantities of goods produced during the period of rising prices and, consequently, of higher levels

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— March, 1939. December, 1947. Percentage Increase. Export prices 869 1815 108-9 Wholesale prices— Locally produced 1029 1512 46-9 Imported 1066 2027 90-2 All groups 1050 1809 72-3

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of aggregate incomes and value of production are shown in the following table of official index numbers of the volume of production, which for purposes of comparison includes also the index numbers of value of production :

Index Numbers of Value and Volume of Production (Base:1938-39 =100)

This table indicates that from 1938 to 1946 farm production increased in volume by 9 per cent, as against an increase of 40 per cent, in value; factory production showed a 36 per cent, increase in volume as compared with a 79 per cent, increase in value, and total production an increase of 48 per cent, in value and 12 per cent, in volume. It is clear from these figures that, although production has actually been increased in volume in spite of the difficulties inevitably associated with war, values have reached high levels from which they may recede. In these circumstances it is wise to take all possible steps to strengthen the national economy by greater and more efficient production and by the avoidance of courses of action that would raise costs and prices without increasing the supply of real goods and services. STAFF The staff's high standard of work has been maintained during the past year and the Board is pleased to record its appreciation of the efficient and willing services rendered.. For and on behalf of the Board of Directors : W. F. L. Ward, Governor. E. C. Fussell, Deputy Governor, 22nd June, 1948.

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Production Farm. Factory. Total (all Groups, including Other). Year. Value. Volume. Value. Volume. Value. Volume. 1938-39 1939-40 1940-41 1941-42 1942-43 1943-44 1944-45 1945-46 100 105 120 119 120 122 143 140 100 102 116 111 108 105 114 109 100 110 122 135 148 162 168 179 100 110 114 117 122 129 132 136 100 106 118 120 125 129 144 148 100 105 112 110 109 107 113 112

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APPENDICES APPENDIX No. I.—EXCHANGE RATES During the year ended the 31st March, 1948, the following rates were quoted by the trading banks for buying and selling sterling : New Zealand on London* (On the basis of f(stg.)lOO) Buying. Selling. Telegraphic transfers .. .. .. £(N.Z.)124 7 6 £(N.Z.)125 0 0 Sea Mail and Air Mail.f Sea Mail. Air Mail. On demand .. £(N.Z.)124 0 6 £(N.Z.)123 15 3 £(N.Z.)125 0 0 3 days' sight .. „ 123 19 9 „ 123 14 6 No quotation. 30 days' sight .. „ 123 16 0 „ 123 10 9 £(N.Z.)124 18 3 60 days' sight .. „ 123 11 9 „ 123 6 6 „ 124 17 0 90 days' sight .. „ 123 7 6 „ 123 2 3 „ 124 15 9 120 days' sight .. „ 123 3 3 „ 122 18 0 No quotation. London* on New Zealand (On the basis of £(stg.)100) Buving. Selling. Telegraphic transfers .. .. .. £(N.Z.)125 0 0 £(N.Z.)124 7 6 Sea Mail and Air Mail.f Sea Mail. Air Mail. On demand .. £(N.Z.)125 12 6 £(N.Z.)126 2 6 £(N.Z.)124 7 6 30 days' sight .. „ 126 0 9 „ 126 10 9 No quotation. 60 days'sight .. „ 126 9 0 „ 126 19 0 90 days' sight .. „ 126 17 3 „ 127 7 3 120 days' sight .. „ 127 5 6 „ 127 15 6 * These rates apply to all parts of the British Isles. f Customer pays air-mail postage. APPENDIX No. 2.—CREDIT CONTROL Following on statements by the Reserve Bank last year, the Bank now makes the following announcement of the general scope and requirements of the Government's policy of supervising the credit facilities granted by the trading banks to their customers in a number of specified categories. This policy is administered by the Reserve Bank with the co-operation of the trading banks ; its objective is to ensure that finance for certain purposes should be obtained, to the fullest extent practicable, by using part of the abundant supply of money already in existence, and not from an avoidable issue of fresh bank credit. After consultation with the Government the Reserve Bank keeps the banks informed from time to time of the requirements of the credit control policy. By this means the operation of the policy is kept in line with current economic and iinancial conditions.

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It is part of the arrangement that the banks refer to the Reserve Bank all marginal or doubtful cases, and all cases where special circumstances make it desirable that individual consideration should be given by the Reserve Bank, provided, always, that the bank concerned is prepared to grant the advance. Every case so referred is given prompt and thorough consideration on its merits. The broad classes of advances which are at present subject to control are advances for—(1) Speculative purposes. (2) Purely investment purposes. (3) Capital expenditure for business, industrial, and commercial purposes, including the purchase of farm properties. (4) Repayment of mortgages. (5) Hire purchase and other credit sales. (6) Luxury purposes. (7) Building, or purchase, or refinancing of dwellings, except for short periods pending the raising of finance from non-banking sources. Some of the requirements of the advance control policy admit of no exception—for example, the rule that bank advances must not be granted for speculation is an invariable rule. But neither hard and fast rigidity nor " rule of thumb " methods govern the general administration of the policy. For example, under the heading of capital expenditure the. procedure, is to consider, firstly, whether the purpose for which the. accommodation is required is necessary to promote or maintain useful production or services, and secondly, whether it is reasonably practicable to obtain the needed finance from non-banking sources, having regard to local conditions and other circumstances affecting the individual applicant. Furthermore, capital goods cover a wide range, from factories, ships, and broad acres at one end of the scale down to individual tractors, trucks, and other business and farming vehicles, farm implements and equipment, fencing, and the like at the other end of the scale. Those who require finance, whether in large sums or small, for the above purposes are located some in the main centres and larger towns and some in the remotest rural districts. All these factors are taken into account by the Reserve Bank in considering applications and in ascertaining the reasonable practicability of necessary finance being provided from non-banking sources. In view of some misconceptions which have arisen, it should be mentioned that finance for raw materials, stock-in-trade, and for current working-expenses are not regarded as capital expenditure and do not come within the scope of the advance control policy and do not require to be referred to the Reserve Bank. An important feature of the advance control procedure is that, in order to safeguard the confidential relationship between customers and their own bankers, the Reserve Bank never asks that the name of any applicant should be divulged. For this reason, and to avoid administrative confusion, applications or representations must not be made direct to the Reserve Bank by members of the communityReserve Bank of New Zealand, Wellington, 26th January, 1948.

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RESERVE BANK OF NEW ZEALAND Profit and Loss Account for the Year ended 31st March, 1948 Dr. £ s. d. Or. .. £ s. d. General charges, including salaries, rent, cost of Balance of profit after making provision for note issue, and other expenses .. .. 277,398 4 5 rebate on Treasury bills not yet due, and for Balance, being profit for year .. .. 645,593 8 8 sundry liabilities and contingencies .. .. 922,991 13 1 £922,991 13 1 £922,991 13 1 Profit and Loss Appropriation Account Dr. £ s. d. Or. £ s. d. Payments to New Zealand Government in terms Balance as at Ist April, 1947 .. .. 581,784 2 1 of section 36 of Keserve Bank of New Zealand Balance from Profit and Loss Account .. 645, 593 8 8 Act, 1933 .. .. .. .. 581,784 2 1 Balance .. .. .. .. .. 645,593 8 8 £1,227,377 10 9 £1,227,377 10 9

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RESERVE BANK OF NEW ZEALAND— continued Balance-sheet as at 31st Makoh, 1948 Liabilities £ s. d. Assets £ s. d. General Reserve Fund .. .. .. 1,500,000 0 0 Gold (at face value) .. .. .. 2,802,147 0 0 Banknotes .. .. .. .. 48,557,528 0 0 Sterling exchange .. .. .. .. 09,442,400 6 4 Demand liabilities— Subsidiary coin .. .. .. .. 120,270 3 4 (a) State .. .. .. .. 23,154,974 18 3 Advances—(6) Banks .. .. .. .. 47,099,482 12 9 To the State or State undertakingsmother .. .. .. .. 579,649 19 10 (1) Marketing organizations .. .. 3,742,380 5 10 Liabilities in currencies other than New Zealand (2) For other purposes .. .. .. 38,000,000 0 0 currency .. .. .. .. 390,526 15 10 Other .. .. .. .. .. 1,512,119 12 1 Other accounts .. .. .. .. 3,242,27113 5 Investments .. .. .. .. 7,868,093 2 11 Profit and Loss Appropriation Account .. 645,593 8 8 Other assets .. .. .. .. 1,682,616 18 3 N.B.—Holdings of sterling have been converted into New Zealand currency at the rate of £lOO sterling equals £124 (N.Z.) £125,170,027 8 9 £125,170,027 8 9 W. F. L. Wabd, Governor. E. G. Fussell, Deputy Governor. W. R. Eggeks, Chief Accountant. Auditors' Certificate and Report We have audited the Balance-sheet as at 31st March, 1948, 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 Bank of New Zealand. In our opinion the 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, 1948, according to the best of our information and the explanations given to us and as shown by the books of the Bank. _.„. , t. t r, ■, ■, t ™' tt' ti' > Public Accountants, Auditors. Wellington, New Zealand, 15th June, 1948. F. H. Harris / Approximate Cost of Paper. — Preparation, not given ; printing (598 copies), £3B 10s. By Authority: E. V. Paul, Government Printer, Wellington.— 1948. Price 6d.]

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