8.—3.

Since this Committee lias been set up you have heard a lot about costless credit, and the issue of money by a Credit Board. Do you think that this could be carried out with advantage to the country^? — Do you mean credit under political control ? jgr Certainly, it would have to be under political control. —There would be a danger in that, because there is always the danger of inflation, and other aspects; besides, the economic aspect conies into it. If the Credit Board took over the note-issue and operated in the same sound way as the banks are now operating, and issued notes to the extent that they were required And interest free ? —But in that case the Government would be losing a tax on the notes. If notes were printed and issued from time to time as suggested, they would have to be cancelled at some time or another ? —Yes. Supposing that process went on until £50,000,000 in notes were issued ? —There would be tremendous difficulties in the way of redeeming them. It is hard to say how they could be cancelled. Might such a policy not lead to promises of credit at election times, with one party offering to issue so much if returned, and another party offering to issue so much more, to go one better ? —That is rather a political question, but I should say that a candidate for election would be rather foolish if he did not take a chance like that to promise something like that in return for support. I suppose you have read of the Guernsey Market Hall scheme I—l1 —I cannot say that I know much about that, because I understand that the experts who write about that scheme seem to be in the dark as to the actual effect of the scheme and all the forces that came into play. Notes were issued to finance the cost of erecting the Market Hall and shops, which were let when constructed, and the revenue enabled them to extinguish the debt by repaying the notes ? —They repaid the notes, I understand. Mr. Lye : They cancelled the notes issued. The Chairman.] From the income received from the premises. That would be a totally "different thing to the proposals placed before us, because the conditions in New Zealand would not be 011 all-fours with the Guernsey Market Hall scheme ? —lt appears that notes were issued against the cost of erecting the Market Hall, and that that debt was met from receipts from the letting of the premises. lam not very familiar with the facts of this case. Supposing we do issue paper money in New Zealand through a Credit Board as suggested, how would that affect our relations with Great Britain ? Would it affect our present monetary relations ? — If you had created a Credit Board instead of a Reserve Bank ? If a Credit Board issued credit soundly, with due regard to the payment of that credit, I do not think that that would, in itself, prejudicially affect our relations with Great Britain at all. Britain would probably consider that as a first step towards the creation of a central bank. The money would not be used outside of New Zealand. It would be a local issue ? —Do you mean that the Credit Board would issue notes along with the banks ? Yes ? —But the banks are only too anxious to issue credit. Do you suggest that the Credit Board would issue credit for purposes for which the banks would not consider ? Yes ?—Well, that would most prejudicially affect our relations, because Britain would see that money was being put into concerns that did not have a chance of showing a profit. What are the primary causes of the bank rates in New Zealand rising and falling ? Is that affected by the London balances ? —To a certain extent. The way the practical banker looks at it is this : He watches the deposits and advances, and if he finds his advances are getting rather ahead of deposits and reaching a figure which he does not consider satisfactory he may raise the rate, but, on the other hand, he may raise the rate to meet competition from outside rates. Various factors come into consideration. An accumulation of money in the Old Country would not affect the position ? —I do not say that, because if money were accumulating in Britain in normal times it would mean that we were exporting more than we were importing, and that would mean that we would have a favourable balance of trade, and the banks might be anxious to stimulate the purchase of London funds by lowering the advance rates. It does not necessarily follow that if London funds reach more than a certain figure the advances rate would go down. The exchange-rate would go down. All these things are interlocked. And that would really have no effect upon the dropping of the advances rates. lam speaking of overdraft rates ?—No, I do not wish to convey the impression that that would not necessarily affect the position. The economic tendency of large balances in London is to lower the exchange and advances rates, but it does not follow that both of these things would take place. Do you think that the present rate of exchange is in the interest of New Zealand ? Would you care to give an expression of opinion on that ? —I would not care to say that. I can say, however, that some method of assisting the primary producers was necessary ; some measures had to be taken either by subsidies or in some other way. What the banks said about their function in this matter was that they could not quote any other than the economic rate. If, for political or State reasons, any other rate were required, it would be for the State to deal with the matter in that light. Ido not know that I should have asked you that question —I do not think, perhaps, that it is quite a fair one to ask you. Now, Turgot, one of the greatest French economists said, "It is the superabundance of capital which enlivens enterprise, and the low rate of interest is at the same time the effect and the mark of the superabundance of capital." Would you care to express an opinion as to whether or not it would be advantageous if the rates of interest were reduced to 3 or 3| per cent., or even to 4 per cent., with a corresponding reduction in the rate of deposits. That would liberate a lot of money and would give cheap and abundant credit as in the Old Country, would it not ?—All things being equal, and it would be done in a practical way, I should think if would be most advantageous. That is what the banks want. They desire the rates of credit to come down. But, as I have mentioned earlier, there are certain obstacles in the way.

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