8.—3.

There might be some reason in connection with an individual client, but it is not a general practice ?—No. Mr. Hade : I think you can put it this way : Although the banks act in unison so far as notes and other policies are concerned, amongst themselves there is intensive competition for business. Mr. Munro : There is nothing in the nature of a ring ? Mr. Fussell: No. Mr. Munro.] Captain Rushworth asked you if the Government wanted £50,000,000 and they placed securities in the hands of the banks could the banks raise that £50,000,000 on behalf of the Government, and I think your answer was in the affirmative ? —lf the Government gave, for instance, Treasury bills, yes. These is no machinery to bar them doing that, because the Treasury bills themselves form the basis for the issuing of the currency. I was not talking of inflation. I wanted to get at the method by which the banks would do it. They would simply liquefy those Treasury bills up to the extent of £50,000,000 ? — The Treasury bills are assessed and the banks can perform the function of turning those assets into a form in which they would be spent. In the case of Treasury bills it might be under the heading of Government securities on the one side and they might pay a deposit into the Government's account on the other. Notwithstanding the fact that approximately to-day the deposit of all the banks must be £50,000,000 ?—Yes. I think it is £61,000,000 at the present time. Now, the Government wants to raise £50,000,000. The banks could find that money providing the Government would hand over to the banks Treasury bills ?—Yes. The banks could give the Government evidence of the purchasing-power which was inherent in the Treasury bills. The banks do not make purchasing-power, but they could do that. It was done in a general way during the war. Would that appear in the banks' books—that would increase the deposits on Government security ? —lt would increase the Government securities on the assets side and it would increase the deposits on the liability side, or, instead, it might reduce other people's advances. The total of the deposits in the banks to-day is £61,000,000 ?—Yes. The Government wishes to raise £61,000,000 in New Zealand by way of issuing Treasury bills to the banks. That is as much money as you ha ve in the whole of your banks ? —That is correct. It has been put up that the deposits in the banks are simply book entries —they are not real money ? —They are evidences of purchasing-power and they must have the backing of the purchasing-power before they could come into existence. Book entries are the only records whidi exist of indebtedness of the banks. Supposing the banks raised that £61,000,000 on behalf of the Government, would that appear in the deposits of the various banks ?—lf it was done by the banks discounting the Treasury bills the Government would go to the banks and say, " Here is £61,000,000 of Treasury bills, cannot you discount them ? " The banks would say, " Pay it into our credit account," and you would find Government securities on the asset side and Government deposits on the other side. If it was spent in New Zealand, some of it might not get back into deposit accounts at all—it might go into advance accounts. It would appear in the first place as a deposit on behalf of the Government and it would increase the general deposits ? —Yes, by £61,000,000. Notwithstanding the fact that you claim that you always advance only the deposit money in general cash reserves. Really the banks, on those Government securities, would bring into existence another £61,000,000 ? —The banks do not bring it into existence. The purchasing-power is there. The Government has set the purchasing-power, and all the banks have done is not to give advances at all. It is turning purchasing-power into currency. At the present time could the banks raise that money in that way for the Government at the pure clerical cost ? Would that be inimical to the interest of the bank ?—lt is very difficult to say whether it would be inimical. You would have to go to the question of whether it was inimical to the country. I consider that to have suddenly to increase the available currency by £61,000,000 would be damaging to the country at the present time. The shock would be less if it were done over a period of time. It is a question of how long they are going to spread the expenditure of this money over ? —-Yes. I want to know, Could the banks do it even in a year if it was necessary for the Government to get the money ?—Yes. The banks could do it. In cases of national emergency if has been done. The banks could charge 4 per cent, to discount ?—Yes. I cannot say what actual amount they would charge, it would be by arrangement with the Government. It would leave them a margin for profits over their costs. For instance, as regards the £61,000,000 : On every £100 the banks would be paying tax to the Government and a : .tax would also be paid on any notes that came into circulation as a result of that. That is the note-tax you are referring to ?—Yes. Could the central bank raise that money in the same way as the present banks could do it ? —That is rather a difficult question for me to answer. The trading banks are allowed to use Dominion Government securities as a basis for note-issue. As far as I can remember the Dominion Government securities are not mentioned as the reserves that the central bank must maintain. It would have to get reserves in London. I ask, Mr. Fussell, if the Government wished to raise £61,000,000 by Treasury bills could the central bank issue notes against it ? Mr. Ashwin: No. The basis of the Reserve Bank issue is sterling. Mr. Fussell: Read subclause (h). section 13 (1) of the Reserve Bank of New Zealand Act, 1933. Mr. Munro.\ Some people seem to have an idea that the central bank would be able to do exactly the same as the present banks could do on behalf of the Government. You do not think

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