A "State Bank,"
Auckland: Printed at the Star and Graphic Offices, Shortland Street. 1893.
A "State Bank."
The question of a "State Bank" has occupied the attention of many persons in the Colonies, especially those who have had to grapple with the stern realities that beset most in their colonial career, the benefits anticipated it would confer being looked upon by each from their several standpoints. It is a question prominently brought forward on behalf of the working classes at the present time, by those who outwardly champion their cause, as a means to alleviate their circumstances and place them in a better position.
But to point to a bank, and that a National Bank, with a "National Bank-note Issue," and assume such issue without; taking into consideration how it is to be effected—upon what principles? what its obligations? how it would affect banks and other monetary institutions now doing business within the Colony? as a question of currency? how maintained? how guaranteed? if metallic? the amount of reserve, and how obtained? are only a few of the many subtle questions that surround such a measure.
The proposition "State Bank" barely stated, unsupported even by theory, much more by any practica] scheme to sustain it (so far as I am aware), I conclude that, for the present at least aye, and even for some time to come must lie in abeyance, waiting further developments.
Colonists generally are so often reminded of our national and private indebtedness, our exports and imports, of what they consist, number of inhabitants, and other items of genera] information by the press, that it would be superfluous to quote them again except in support of a reference.
Public opinion, embracing all shades of politicians, decrees that here, in New Zealand, "shall be no further borrowing on the part of the State." All financial circles in England applaud and commend the doctrine; a great section of the community in New Zealand, composed of monetary institutions, companies, and large landowners endorse the fiat.
There are men who, either from pride, avarice, or devotion to the State, are always found ready to accept the offices of Ministers of the Crown. Among their great responsibilities are—keeping up the credit of the State by providing for the payment of the interest on our borrowed capital, the maintaining the exports of the Colony, the opening up of the waste lands of the country, the employment of the population, and so forth.page 4
It is of the first importance to know that the productiveness or the elasticity of the country can be relied upon, if developed.
With a population of only 650,000, of all ages and sexes, and occupying little more than the sea-border of the country, our exports are nine and a half million sterling (£9,000,000); and, with a public debt of forty million (,£40,000,000), we have thrown down the gauntlet, and declare we will borrow no further. Are we, then, to increase taxation? That, also, is denounced by the voice of the people. We cannot, do away with our responsibilities; nor can we easily consign to oblivion a young nations future for even a short time. By allowing things to proceed as they have been, would be retrogression, and a stigma upon our past energies, our national progress.
To break up great landed estates,—to prevent large areas of land passing into the hands of single individuals,—to relieve the occupier of land from taxes on improvements on his estate,—to create small freeholds, and otherwise holdings of Land, to place settlers upon them,—to find work at remunerative wages for the unemployed,—the purchase of lands from the natives,—the necessary surveys,—the making of roads and bridges,—felling of timber, with a view to prepare the waste lands for cattle and sheep, thereby increasing our exports, are questions that must be solced.
To devise means for the raising of capital wherewith to accomplish these great and necessary objects is of paramount importance. The transfer of some of our public stocks has been resorted to for this end. But that system cannot continue; it is already at an end. It has been suggested to issue "Government Bonds," bearing interest, negotiable within the Colony; but that, certainly, is equivalent to borrowing, and would be taken advantage of by all banks doing business within the Colony.
It is also on the tapis "that the Government borrow or procure money from English capitalists at a low rate of interest, and lend it out through some of the public offices to settlers." In whatever shape such a questionable proposition may be brought forward, it includes within it, all the elements of a borrowing policy, with State security to a foreign creditor, including taxation, and would entail an immense expense in inspection, valuation, banking, and clerical assistance,
We have not built our present prosperous position upon speculation, or by trading in competition with other Colonies, but upon the actual produce of the soil; and with manual labour, aided by Science extracted the treasures of the earth, which our exports testify, in wool, frozen meats, dairy produce, grain, tallow, hides, flax, etc., with gold, silver, coal and other minerals, and gum.
We have yet in reserve upon which it is desirable to operate seven to ten million (10,000,000) acres of land; suitable for pastoral, agricultural, and mining purposes.
The question then naturally arises, How are we to take advantage of our position, without increasing taxation by borrowing in a foreign market, or placing Government Bonds, bearing interest, on the colonial market?page 5
With these obstacles standing in our path of progress, it becomes us to enquire, Are we using the powers vested in us, as a governing body, for the benefit of the State and those we profess to govern?
We have experienced the monopoly of land, and destroyed its power; we have seen the combination of capital, its oppression, and its withering influences, and laid a sap to its foundation; we have also seen and experienced the evil effects of companies with limited liabilities in some instances obtaining the hard earnings of the artisan and labourer (as cash depositors) by giving a high interest for their savings, to build up and sustain a worthless imposition, A further enumeration of those parasites that engraft themselves upon the State and community would not serve any purpose, except as a warning to be avoided. They are falten; a new order of things is replacing them. The working classes have partially asserted their right to deal with the public estate; and, with a view to further aid, in a constitutional manner, so as to be able to resist any combination of force that may assail it, have conferred upon the women of this country an equal political power of vote—"Women's Franchis."
The difficulties that surround the establishment of a "State Bank" in New Zealand for some time to come happily cannot be advanced in a substitute that will confer equal advantages in aiding the Colony to maintain its national credit, develop its resources, employ its population, and foster its trade and commerce.
There are six banks, Foreign and Colonial, with a paid-up capital of close upon six and a quarter millions (£6,125,000) sterling, doing business within the Colony, with 230 agencies only, and these include several in each large centre. The number of towns represented by banks in New Zealand is very small. The enormous business carried on by them can in some measure be computed by their note circulation within New Zealand, which amounts to, it is stated, between three and four million pounds (£3,000,000 and £4,000,000) in notes annually. The earning power of these banks can also in some measure be ganged by the interest (after deducting all ether expenses and charges) they pay to the shareholders in their respective banks—from five to fifteen per cent., and in some instances with bonuses. It must be borne in mind that the greater portion of these amounts of interest goes out of the Colony, so that the country does not reap the advantage of its being expended here.
If we proceed with the note circulation in proportion to population, and assume it is the same in New South Wales and Victoria, with their one and a quarter million of inhabitants each, and add Queensland, South Australia, all other States, and England, where their business is conducted, and ask, If a population of 650,000 can employ three to four million in bank-notes as a floating paper currency upon a capital stock of six and a quarter million sterling (which also represents all the other places named), what amount (after providing for all outlay in connection with their several extensive establishments) is represented in note circulation alone! Will twenty million (£20,000,000) cover it? And if this postulate is tenable and reasonable, we obtain a glimpse of the indirect burden page 6 placed upon consumption from this quarter. Who bears it? I need not enquire.
Give banking institutions all the freedom it is possible for them to possess, and encourage capital, or the representative of capital by allowing it to go untrammelled. Nevertheless, I infer the State, too, has its claims and obligations, and must exercise its prerogative in respect to a currency that proves itself so valuable to every nation in the world.
To establish a system that would be the means of opening op the country, placing settlers upon the laud, increasing our exports, employing those out of work at remunerative wages, without borrowing abroad or at home, and also without further taxation, at the same time maintaining our national credit, and which system could not and must not interfere with the freedom and trade management of banks and other monetary institutions established in the Colony, is the great problem.
Placing ing settlers upon the laud should embrace the ultimate right of "freehold," giving them a permanent interest in the State, a tangible security in the future for them and their families, and on the part of the State a surety that the land will be worked advantageously, with improvements, and not left with its properties worked out and worthless. Where "Loans" are required, if deemed expedient, I would suggest as favourable as possible upon the sinking fund principle, with a provision that no mortgage or other lien should lie against the property until all claims of the Government are extinguished.
If the circumstances of the Colony will not admit of the establishment of a "State Bank," as I have before briefly referred to, we then must consider the next practical alternative—the issue of
"State Bank Notes"
—such notes to be made a legal tender.
It is admitted that the Government of a country has a right, with the sanction of the Legislature, to make and issue "Stamped Banknotes" It would be granting a new charter, as it were, to the Government, under the present circumstances of the Colony; and for the purposes hereinafter narrated, it will be seen that the plan is perfectly practicable and justifiable, the State becoming security for the whole issue. It lays the foundation of a system that will be free from financial speculation, trade and business crises; and however assailed, it cannot be overturned or upset, as it, will he engrafted into the State by applied principles, and supported by combined forces. In respect to value, no other bank-note can equal it, as it is beyond outside influences, not being subject to Foreign control or misadventure. As a circulating medium for all receipts and disbursements of the Government within the Colony, it will be the chief issue, carrying with it the impress and authority of the State.
It would be premature to attempt to form an opinion as to the quantity of "State Note" needed, as the amount of business transacted would govern the issue, the rapidity of circulation being a great factor in the interchange.page 7
It would be only following the natural laws of trade and commerce that present monetary institutions will accommodate themselves to the position) as in no case does the proposition suggest the slightest approach to the Government entering into any commercial transactions affecting the business between banks and their clients,
It may be objected that the Government has no gold or bullion to hold as a reserve, as a guarantee of their note issue. But their position is doubly fortified, in that it is required that all monies due and accruing on account of the State, in all departments, shall be paid into the several Post Ornees, as the "State Bank" (as ordered), to the Government account, so that they become the actual bank of deposit for the State.
As to the stability of its value, the whole public estate is held as a guarantee for the circulation. There are few who would dispute the utility of a bank-note; but as to its value, that certainly depends upon the resources by which it would be sustained in case of a sudden demand: and who can foretell those disasters the consequences of which have been so severely felt here, in Australia, and America of late?
Thus in proposing a '"State Bank-note Issue"' for national purposes, it wit! be seen at once that the holders of these notes have a guarantee in the State that no other bank-note issued in the Colony can possibly possess; and when the issues are used by the Executive Council with discretion, and for the objects indicated by the Legislature, will form an inexhaustible source of wealth, not so much in the actual value of the Stale Notes issued, but its effect, in reproduction.
In respect to currency, the "State Note" being in vogue would prevent the abscision of the rights of any portion of the community.
The issue by the six Banks in New Zealand of from three to four million in notes annually and their amount of earnings, as previously mentioned, is a convincing proof that the country would be justified in taking a portion of the bank-note issue into their own hands, utilising it in conjunction with the great revenue and deposits collected by the Government from their various sources, and paying all demands within the Colony with "State Notes."
A "State Note Issue" would be the means of at once expanding the trade and business of the country, as money would become easier in financial circles.
It is not my province here to enquire why, after collecting the revenue of the Colony (ordinary revenue alone four and a half million) from its various sources, also the Government Savings Bank, £2,863,671 and other State deposits, by officials appointed for the purpose, the Government should pay these monies into a Foreign bank, withdraw them as occasion requires, circulate that bank's bank-notes, and pay on those transactions interest as between bank and bank client.
The question of administrative economy in all its details is forced upon us; by the Government adopting the conversion of the "Savings Bank into a State Bank scheme;" the cost of raising and collecting the revenue would be materially decreased; the employ- page 8 ment of a Foreign bank by the Government for their account dispensed with; and for their Foreign monetary transactions in England, employ the Agent-General's Office.
It may be advanced that the Colony could not sustain an increase in its note circulation. That would soon become apparent m either case, as such currency would soon find its level. But the State must be the gainer.
There are many other things that could be advanced to justify the proposition, but they dwarf in comparison to the finding the funds (without going into debt and saddling the Colony with further taxation) for the purpose of opening up the country and developing its resources.
The currency barter here propounded is simply the self-reliance policy imported into the productive capabilities of the Colony, the supplying the Foreign markets with our exports—which is yet in its infancy, as I have shown we have the area of land containing the necessary qualities for production in pastoral, agricultural, and mining properties, waiting only to be turned to account,
I give these few suggestions with some—in order and number-brief explanatory notes in reference to each, together with the correspondence I have had upon the subject with the Honble. J. G. Ward, Colonial Treasurer, and hope they will be the means of ensuring success to the end they are directed, us if judiciously applied they will give a greater value to land with-out creating a "boom," and increase small holdings, thereby opening up the country and aiding trade and commerce in the great centres of population.
Alkklt PotterMount Eden, Auckland,
Scheme for Converting the "Post Office Savings Bank" into a "State Bank" without affecting the Status of the present Banking Institutions of the Colony.
First.—Converting the Government Savings Bank into a "State Bank' for the receipt of all the revenues of the State, and the disbursement of all Government accounts within the Colony; at the same time retaining its functions and character as a "Savings
Second—The issue by the Government of "Stale Bank Notes" which shall be a legal tender,
Third.—All Chief Post Officer, First-class and Central Second-class Post Offices, to receive deposits, and pay withdrawals on demand.
Fourth.—Third-class and Fourth-class Post Offices to pay on the wal rant of nearest paying office.page 9
Fifth.—All payments to be made in "Stale Hank Notes"
|(a)||Deposit Account to be for stated periods of one Lu five year, at rates of interest to be hereafter decided upon.|
|(b)||Current Account to be operated upon at prenent, and at a lower rate of interest than Deposit Account.|
|(c)||The total amount of any one deposit upon which interest is to be allowed not to exceed five hundred pounds (£500).|
Seventh,—All Imprest and Deposit Accounts of Government Officers and Local Bodies to be kept at the "State Bank" and such accounts to he drawn on by cheque, and paid in "State Notes"
Eighth.—All (.Government vouchers, accounts, salaries, etc. (after being passed by the Audit or proper certifying Officer), to he presented and paid at the nearest "State Bank" instead of the Treasury cheque as at present,
Ninth.—All remittances of Goverment monies to be made through the "State Bank."
Tenth.—All cash circulating notes of other banks received by the Postmaster to be placed to the credit of the Public Account, of New Zealand, at the principal offices of each centre (to be arranged) or at Wellington, and to be dealt with hereafter in exchange at the several banks, or a bank appointed by such banks, or clearing house, according to the arrangements to be made in respect thereto by the Government and those institutions.
A State Bank framed upon the attached principles would only effect the present banking companies in a very gradual manner, and would not therefore meet with that opposition from them, and those interested in their welfare, as a "State Hank" modelled upon the present banking principles.
First.—The "Government Saving Bank" converted into a "State Bank." This bank would retain all its functions and character as heretofore; at the same time it would be the receptacle of all the revenue of the State and through it would be disbursed all claims payable by the Government.
Second.—The Government, with the sanction of the Legislature, would make and issue "State Bank Notes" which notes would be a legal tender, the holders having the State as a guarantee, their not being subject to Foreign influence.
Third.—Post offices could be so classified as to meet all requirements of the public, those situated in sparsely populated districts page 10 suiffering only a day or two's delay in waiting for warrants to pay, instead of two or three weeks as at present. All Post Offices through the country to be made Post Office "Saving Banks." There being about twelve hundred Post Offices, every working person or others desirous of putting by their savings would have a bank of deposit close to their doors, and those deposits guaranteed by the Government, and bearing interest. Under the present system, at the end of December, 1892, there was to the credit, of Savings Bank depositors £2,863,670. How much more may he looked forward to when such facilities are opened up through the country,
Fourth.—This merely has reference to the departmental arrangements in respect to the paying out, on the authority, and at the various paying offices created.
Fifth.—The issue of "State Bank Note" would provide a large amount of cash, which could be utilized by the Government in Public Works, Loans, Loans to Public Bodies at a small rate of interest. Thus the money spent on these purposes would come out of the thrift of the people themselves, and they would be in reality lending their money for the purpose of making opening up, and improving the roads in their own districts, and placing Road Boards, Boroughs, County Councils, etc., in a much better financial position by relieving them of the exorbitant interest now charged by private banks for overdraft
Sixth.—A system of deposit account extending over a period of one to five years would guarantee a large amount of money being placed at the disposal of the Govern munt for those periods. The current account, operated upon as at present, Would be greatly augmented by increased facilities given through withdrawals being paid on demand. The present system of waiting days and weeks before a withdrawal can be paid is a serious barrier to hundreds of persons in each district The advisability of permitting withdrawals to be made by cheque could be considered after the scheme has been brought into operation and tried. At present there is much against it, the system now in vogue of personal application preventing fraud, and suiting the class of depositors likely to use the bank,
Seventh.—The keeping of all Government imprest and deposit accounts of Government officers, and Local Bodies' accounts, would not only give a greater security against fraud, but be a great saving in exchange new paid to other institutions. These accounts could be operated upon by cheque, and paid in "State Bank Notes."
Eighth,—The payment of all salaries, accounts, subsidies, contracts, etc., by the local agency of the "Stale Bank' would be an enormous saving in bank exchange, besides saving the large amount of clerical labour necessary to issue cheques at the Treasury, The officers so employed could be utilized in the "State Bank" as the increase of business would demand more clerks. Thus no extra cost would be incurred by the enormous increase, and no hardship inflicted on those employed in the Treasury.page 11
Ninth.—All remittances would in reality he stopped, as the payment of monies into the agency of the "State Bank" would be sufficient, A great saving in the cost of remittance would be effected.
Tenth.—This has reference to the exchange of the circulating notes of other banks received by the several Postmasters as the "State Bank." The custody and distribution of the note and metallic currency would, as a matter of detail, devolve upon the officers appointed by the Government.
Copy of Correspondence with the Honble. J. G Ward, Colonial Treasurer.
July 29th, 1893.
Sir—At various Limps surggestions have been made as to the advisability of establishing a "Staff Bank" The late erisis in banking institutions on the Continent of Australia, and the consequent effect upon great commercial concerns, not only paralyzed trade and business, but have been the means of undermining and actually destroying public confidence. The Government in one instance has interfered (whether wisely or not) by special legislation to avert disaster. Three Premiers Verniers in conference (Victoria, New South Wales, and South Australia) have come to the conclusion that the "banking larges of the Colonies must be inform under specific conditions.
How these would ultimately affect New Zealand can at present be hut conjecture. Sufficient already are exemplified how their business transactions affect this Colony by the suspension ot the I Loan and Mercantile Company. This is a simple issue. What may be, under a more complex system, must be left for further consideration.
In partial mitigation of their inability to meet their engagements, Goldsborough, Mort, and Co, there, and the Loan and Mercantile Company here, state the cash depositors demand their deposits. The inducements held out by these and similar institutions invite "cash deposit," upon which they are partially worked. The risk is not foreseen or contemplated by such depositors, as the management is so completely concealed by its business operations. These facts, with their attendant evils, comprise partial ruin to some, and total ruin to other, I venture to submit a proposition for your consideration:
The "Post office Saving Bank," to be converted into a "State Bank" or rather could he utilized as such to the advantage of both depositors and State without any expense or radical change. The Chief Post Qffices and First. and Second Class Office could be made receiving and paying branches: all payments to be made in "State Notes"; the notes issued not to exceed the amount of deposits. All Third and Fourth Class Offices to be receiving offices only, and to pay out on the warrant of the nearest paying branch. All Government monies could be transferred, and payment made, without the aid of any other branch. This would save the Treasury a considerable amount of work, as all vouchers could be paid on authority, thereby saving the issue of cheques. Even if the duties of such a bank were restricted to cash transactions, the amount of business would he enormous, as a small interest on current accounts would be sufficient to secure all desirable accounts, and the amount of "State Notes" in circulation would give the Goverment a large amount of suplus cash. If the deposits were limited to say £500 as at "present, there would be no fear of page 12 a "run" at any time, and thus allow the Government to sink monies in a payable manner. I have not entered into minute particulars, but all I he neeessary apparatus is now in vogue.
I have laken the I thirty, sir, to direct this proposition to you privately, as on other questions 1 have dono myself the honour to suggest to the Government of the day I have had some reason to infer they have been delayed to a convenient season before reaching the principal for whom they were specially intended.
Your obedient servant,
Albert Potter.To the Honble
J. G. WardColonial Treasurer. Wellington.
Copy of Reply.
21st August, 1893.
Sir,—I am in receipt of your letter of the 29th nltimo, in which you suggest that the "Posi office Saving Bank" should he converted into a "State Bank," and I thank you for the same.
The matter is a very large one and requires to be most carefully thought out.
Your obedient servant,
J. G. Ward.Albert Potter, Esq., Albert Avenue, Mount Eden, Auckland.
Printed at the Star and Graphic offices, Auckland