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The Pamphlet Collection of Sir Robert Stout: Volume 82

A Legal Tender

A Legal Tender

4. The issue of private circulating notes by any bank or company to be prohibited. 5. The State bank-notes to be redeemable in specie or by draft on the Bank of England. 6. The money received for notes to be applied (a) in maintaining a reserve on hand to suit the convenience of the public; (b) in exchange for debentures issued under the authority of Parliament; (c) in maintaining a credit with the Bank of England; (d) in such good and sufficient securities at three months' notice, as may be allowed in terms of law; (e) in advances to landowners for improvements, repayable by way of annuity in such amount as may from time to time be fixed by Parliament; (f) in the purchase of exchequer or deficiency bills issued under the authority of Parliament. 6. The State Bank to be the Clearing House for all other monetary institutions in the colony. 7. The present misleading and defective quarterly returns to be amended so as to afford more clear and re liable information. 8. Foreign banks to have a defined portion of their capital in use in the colony, and to issue half-yearly balance-sheets applicable only to their business within the colony. 9. The capital of foreign bunks, and their assets in the colony, to be subject to a preferential claim on the part of creditors within the colony. 10. Every bank or monetary institution receiving deposits from the public to be subject to periodical inspection on the part of a public officer. 11. Penal clauses. Several of these points may not be approved of finally, but their postponement or rejection would not interfere-with the operation of the vital principle that the control of the currency should be vested in the State under proper safeguards and suitable conditions. Almost all these provisions are in force in countries where the Government possess the controlling power of page 20 the currency, and before a law could be passed on the subject in New Zealand we might have the benefit of the experience already obtained elsewhere—I would especially allude to India and Canada. The Secretary of the Chamber of Commerce has at my desire already written to the Chambers at Toronto and Calcutta on the subject. There is no fear therefore that the required legislation would be of a crude, impractical, or untried character. To show the advantages of a State circulation, I cannot do better than refer to the system in force in India. On July 16th, 1861, an Act was passed by the Government of India providing for the issue of a paper currency through a Government department of public issue, by means of promissory notes, varying in amount from £1000 to 10s. The notes are a legal tender, and rendered payable at the place of issue and the capital of the Presidency. Further legielation was consolidated by Act III. of 1871, and from a very small begioning, the circulation has now reached the enormous sum of 14 millions sterling, with great advantage to the commerce and production of the Empire. What may be accomplished by a State paper currency may be illustrated by the instance of the Guernsey market. Daniel le Broc, the governor of the island, determined to build a market in St. Peter's, but not having the necessary funds, issued under the seal of the island four thousand market notes for one pound each, with which be paid the artificers. When the market was finished and the rents came in, the notes were thereby cancelled, and not an ounce of gold was employed in the matter. The Governor thus obtained a loan for the construction of the market without interest, and as the expenditure was immediately reproductive the whole transaction was one of pure gain. Whatever amount of paper currency this colony requires, the excess above the reserve of gold is a loan without interest, and it is surely more just that the community should enjoy this advantage than that it should go to swell the dividends of absentee shareholders.

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One word before we conclude as to the expediency of a general clearing house. The tanks in the colony being for the most part branch establishments are jealous of each other, and slow to adopt any plan for their common benefit. Accordingly we see this anomalous state of things every year, namely, one bank sending coin out of the country and another importing an equivalent. It is a remarkable fact that, with rare exceptions, the exports and imports balance one another. In 1881 the imports were £153,000, the exports .£166,000—a difference of £13,000. In 18.2 the imports were £265,320, the experts £262,000—a difference of only £3,320. In 1883 the imports were £195,000; the exports £83,760, so that the balance was in favour of the colony to the amount of £111,240. But if there were once an adequate reserve of coin in the colony it is difficult to see what is gained by the absurd system of sending away with the one hand and drawing back with the other. Indeed it would be a decided gain to the banks themselves were they compelled to settle their exchanges by drafts on a central clearing house. In Scotland, where the amount of business conducted is ten times that of this colony, never a covereign passes, the balances being settled by drafts on London. I have already referred to the benefits which would accrue from the establishment of a State bank of issue in the relief from unwise and unwarrantable restrictions, in freedom from distrust which would ensue, in the maintenance of public confidence, in abundant scope being afforded for legitimate enterprise, in the lowering of the ordinary rates of interest; but I believe other advantages would follow. There might be assistance rendered to industrious settlers at present crushed down by heavy interest and commissions by special institutions established for their benefit, and our tradesmen might also be benefited by encouragement given to People's Banks in every centre of industry. Under proper organisation the State bank might be a vast machine confer- page 22 ring incalculable blessings on trade and production by securing the use of cheap money through the interposition of its support. In Germany, where 30 years ago a working man could not obtain an advance except at usurious interest, he can now get what he needs at 5 per cent, through the People's Banks, which now number nearly 2000, with a capital of six millions, and deposits of nineteen millions-Oar State loans might be more economically managed. The immense tide of surplus wealth in England would break freely on our shores; our own accumulation of capital would proceed rapidly; our progress—dependent on our abundant resources of all kinds—would advance with accelerated pace, and public works of productive power would be prosecuted vigorously, unhampered by the capricious and perilous timidity which is the characteristic of bank institutions not indigenous to the soil. But without looking too far forward, there is no doubt that a State bank of issue would afford us instant benefits by rendering our trade and commerce wholly independent of fluctuations outside our own borders, and every man would have the prospect of receiving the full reward of his hard work and intelligent industry.

In conclusion, I beg to say that in the suggestions I offer for reform in our monetary arrangements I disclaim all hostility to the banks established in the colony. The pole object I have in view is the good of the public and the prosperity of the colony. Any measure which leads to such ends must place banking business on a more safe and satisfactory footing, and be more profitable for the shareholders and more useful to all concerned. I therefore claim the assistance of the banks in carrying these suggestions into practical effect. They must march with the times if wisely guided. I have no desire to interfere with their legitimate business. If a bank of issue were established, banks and finance companies who might be members of the clearing-house, would form the intermediaries between the State bank and the public. No bank need then fear a run for gold. There page 23 would be no drawback to the proper expansion of business. The knowledge that notes could always be obtained in return for any available form of wealth offered in security would make us independent of outside panic, and an industrious and energetic people, numbering half-a-million, having abundant resources and a fine climate, and possessing property after deducting all incumbrances of the value of one hundred millions sterling would never again be placed in the anomalous position of having to encounter the troubles which always follow a feeble or restricted circulation.

On the motion of Mr C. S. Reeves, a vote of thanks was accorded to the lecturer.

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