B. —3.

power to do it, as they did not have any deliberate or long-range policy at all, the banks did not always make the best use of their powers. That is the sense in which I mean it. Could it be put this way : That the trading banks are left to pursue their ordinary proper bank functions I—Yes. But that some power has been removed from them that will now be operated by the Reserve Bank ?—Yes. And may I suggest that it is a little misleading to describe that institution —the Reserve Bank — as a bank. Is it not rather the modern equivalent of the Royal Mint ? —No. I do not think so. The work of a mint is purely putting a State certificate on metal is it not ? Is it not putting the sole fount of the manufacture and issue of coin with the Reserve Bank 1 — No it does not directly bring the coin into use, it only regulates the other banks in doing so. The increase and decrease of credit will still be carried out by the commercial banks in making advances as they do now ; except this, that there has been a method of control over their operations devised whereby the Reserve Bank will exercise an overriding power to make them pursue a given line of policy. But the words are in this Act somewhere "manufacture and issue." Do you remember them ?• — Of bank notes ? Yes ? —Yes. It is section 23, subsection (3) (h). I will read it: The form, denomination, design, and material of bank-notes, and also their manufacture, custody, issue, redemption, retirement, and cancellation ? — That is true. If we applied that term to coins that would, be in effect what the Royal Mint does ? —Yes. But the Reserve Bank does a lot more than that. The point is, that those bank-notes, as pointed out in this article, are purely subsidiary to the credit structure. The Reserve Bank does do more than that, it keeps the Bank accounts ? —The Reserve Bank can do this, if they think an expansion of credit is desirable, they have various means of bringing it about. They can force people to borrow ? —No, but they can tempt them. Meaning that the present banks do not tempt the people to borrow ?—No, not to the extent that they might. The whole thing comes back to banking policy. It might be pointed out that our commercial banks are primarily profit-earning institutions, and they are after profits in business. When times are good they may fall over one another in their competition for business, and thus tend to carry things too far. When times are bad and they are all trying to avoid losses they will probably tend to go too far in the other direction from the point of view of being too sudden and drastic in restricting credit. Now our Reserve Bank, being freed from pressure in chasing profits, should avoid these pitfalls. Is the Reserve Bank free from that ? —Yes. It has no interest in profits at all. That is the whole object underlying the provision whereby the State takes all the profits apart from the fixed dividend on the share capital. Why was it considered necessary in these circumstances to have private shareholders at all ?— That is one of the means devised as an additional measure of stability, with the idea of keeping the controlling factor of monetary policy to some extent outside burning political questions of the day. It is only a means of giving an extra broad basis to the Reserve Bank. On page 2 of your statement you say, " but it is nevertheless true that to a large extent the initiative rests with the trading community "as to whether they are going to have credit or not. Is that correct ?—Yes. So that the banks do not control the situation ? —No. Their action is largely passive. They are not a positive element in bringing prosperity necessarily ?—No. They can tempt people, but they cannot force them into taking action. Mr. Langstone.] What is the position when there is a sudden calling-in of overdrafts like there was in 1921 ?—That comes back to the point that I made earlier, their power of positive action is greater in stopping a boom than in starting a forward movement following a depression. If it is nevertheless true that to a large extent the initiative rests with the trading community, if the banks call in the overdrafts how can a community come into it. It has been initiated by the banks ? —That is restriction. lam speaking here, of course, of moving the other way. Dr. Sutch.] On page 5 you say, " The export of gold for exchange purposes has been absolutely negligible." After the Exchange Pool was there not £1,000,000 went out to assist sterling balances ?— Yes. That definitely was to help> the sterling funds overseas ? —Yes. On page 6, at the bottom, you have an item " sterling " in your account there, and you have a Profit and Loss Account of £5,000. Are you not adding New Zealand currency and sterling together ?— Yes. That is so. Normally the basis upon which sterling should be included depends upon the relative position of the two currencies. It would be included in New Zealand currency, I suppose ? —Yes, if we had a different money of account than sterling. In other words, if you assume that our parity of exchange is no longer pound for pound. Is not the assumption that the exchange was £105 ?—Yes. That is true, but still that is presumably only a fluctuation. I was inferring that it should be brought into the balance-sheet at its New Zealand value at the moment ? —That would not be sound. Supposing the exchange was fluctuating widely and went to 50 per cent., you would then have a large increase in your sterling assets, whereas later on you might have to sell that sterling for 10 per cent, or for par. On page 8 you have " The firms concerned all have accounts with the banks, and if John Brown transfers £1,000 of his deposit at the bank to a stock and station agent the net effect on the aggregate

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