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1949 NEW ZEALAND

RESERVE BANK OF NEW ZEALAND ANNUAL REPORT OF THE BOARD OF DIRECTORS AND STATEMENT OF ACCOUNTS FOR THE YEAR ENDED THE 31st MARCH, 1949 Except where otherwise specified, all amounts are expressed in New Zealand currency.

Laid on the Table of the House Pursuant to Section 38 of the Reserve Bank Act, 1933

ANNUAL REPORT

To the Eight Hon. the Minister of Finance. The Board of Directors presents hereunder the report on the operations of the Reserve Bank of New Zealand during the financial year ended the 31st March, 1949. BOARD OF DIRECTORS It is with deep regret that the Board records the death of Mr. W. F. L. Ward,' Governor of the Bank, which occurred on Bth July, 1948. Mr. Ward was appointed Governor as from Ist February, 1944, having been Acting-Governor since Ist May, 1941, and Deputy Governor from the inception of the Bank until that date. Mr. E. C. Fussell, who, since 21st May, 1941, had been Deputy Governor of the Bank, was appointed Governor as from 21st July, 1948. Mr. A. Ross, previously Deputy Chief Cashier, was appointed Deputy Governor as from 3rd November, 1948. The appointments of Mr. Fussell and Mr. Ross were made by Orders in Council issued pursuant to the provisions of section 25 of the Reserve Bank of New Zealand Act, 1933. Both Mr. Fussell and Mr. Ross have been with the Bank since its inception. PROFITS The net profit for the year, after making provision for depreciation and contingencies, amounted to £739,930 15s. Id. This amount has since been paid into the Public Account to the credit of the Consolidated Fund.

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BALANCE-SHEET The principal changes in the balance-sheet as at the 31st March, 1949, compared with that of the previous year were as follows : Liabilities Bank Notes The increase during the year of £799,342 in notes outstanding from £48,557,528 on the 31st March, 1948, to £49,356,870 on the 31st March, 1949, reflects a further slowing down in the rate of increase. This trend is shown by the following table : Notes Issued as Increase, at 31st March, £ £ 1939 .. .. .. .. 15,246,971 1940 .. .. .. .. 18,284,757 3,037,786 1941 .. .. .. .. 21,440,823 3,156,066 1942 .. .. .. .. 24,145,054 2,704,231 1943 .. .. .. .. 30,390,754 6,245,700 1944 .. .. .. .. 36,254,495 5,863,741 1945 .. .. .. .. 40,201,306 3,946,811 1946 .. .. .. .. 43,489,031 3,287,725 1947 .. .. .. .. 46,878,128 3,389,097 1948 .. .. .. .. 48,557,528 1,679,400 1949 .. .. .. .. 49,356,870 799,342 The effective note circulation —that is, notes in the hands of the public—was £42-199 millions on the last Wednesday in March, 1949, an increase of £l-443 millions for the year. The following figures show the increase by denominations that has taken place in recent years. A point of interest is the proportionately greater increase that has occurred in £5 and £lO notes.

(£000)

Demand Liabilities (a) State. —Total deposits held by the Bank under this heading showed a decrease of £2-58 millions, from £23-15 millions on the 31st March, 1948, to £2O-57 millions on the 31st March, 1949. From May, 1948, to February, 1949, the monthly average of these deposits was £lO-057 millions. The customary increase in this item during March (and, to a lesser extent, during April) reflects principally the receipt by the Government of income-tax. (b) Banks. —The total deposits held by the trading banks at the Eeserve Bank increased by £l2-42 millions, from £47-10 millions on the 31st March, 1948, to £59-52 millions on the 31st March, 1949.

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Last Balance Day in March, 1943. 1944. 1945. 1946. 1947. 1948. 1949. io/£1 .. £5 £10 .. £50 .. Trading banks' notes outstanding 906 7,332 13,306 2,095 2,154 382 952 8,021 16,422 2,791 2,634 376 990 8,356 18,599 3,366 2,504 371 1,087 9,143 21,085 3,256 1,706 366 1,143 9,422 22,486 4,218 2,001 363 1,171 9,434 23,117 4,687 1,987 361 1,216 9,521 24,027 4,990 2,086 359 Total active circulation 26,175 31,196 34,]86 36,643 39,633 40,757 42,199

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This increase is mainly attributable to — (1) Eeduced purchases of sterling from the Reserve Bank by the trading banks : (2) Compensation which the trading banks received in New Zealand currency for the exchange appreciation of the 19th August, 1948 : (3) The repayment of Government securities held by the trading banks. No alteration was made to the statutory minimum balances which the trading banks are required to deposit with the Reserve Bank —namely, 7 per cent, of their demand liabilities and 3 per cent, of their time liabilities in New Zealand. The statutory minimum balances as on the 31st March, 1949, amounted to £ll-7 millions. Assets Gold The value of gold held by the Reserve Bank increased by £430,834 6s. sd. during the year to £3,232,981 6s. sd. This increase is due to the Reserve Bank's acquisition of New-Zealand-produced gold and of sovereigns in terms of Regulation 5 of the Finance Emergency Regulations 1940 (No. 2). Further reference to the purchase of gold by the Bank is made later in this report. The above-mentioned regulation became effective with the issue of the Gold Acquisition Notice 1948 on the 19th August, 1948. Gold coin and bullion are valued in the balance-sheet at cost. Sterling Exchange On the 31st March, 1949, sterling exchange held by the Reserve Bank totalled £50,596,285, compared with £69,442,400 on the 31st March, 1948. While this represents a substantial reduction in terms of New Zealand currency, the decline may be attributed mainly to the alteration of the rate of exchange to parity with sterling in August, 1948. The actual reduction in holdings during the year in terms of sterling amounted to £(5tg.)5,405,650. In accordance with section 4 of the Finance Act, 1934, the Bank received compensation from the Government equal to the amount by which the value of its exchange holdings (in terms of New Zealand currency) were reduced as a result of the adjustment of the exchange rate. Further reference to the Government's liability in respect of compensation will be found under the headings of " Investments " and " Exchange Rate." The average amount of sterling exchange held by the Reserve Bank throughout the year was approximately £(stg.)lo millions less than that of the previous year. The banking system's aggregate holdings of foreign exchange are reviewed in a separate section of this Report. Advances to the State or State Undertakings (1) Marketing Organizations. —Advances to these organizations outstanding at balance date totalled £4,164,966. The average amount outstanding during the year on a weekly average basis was £l-332 millions, a decrease from that of the previous year of £167,000. During the year, consequent upon the passing of the Apple and Pear Marketing Act, 1948, the responsibility for marketing New Zealand apples and pears passed from the Marketing Department to the Board set up by this Act. Overdraft accommodation is made available by the Bank to the Apple and Pear Marketing Board, on terms similar to those extended to the Dairy Products Marketing Commission, at the rate of 1 per •cent, per annum. This rate is also applicable to the other marketing organizations.

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(2) Other Purposes. —The amount outstanding on the -31 st March, 1949, was £3B millions, which was the same as that outstanding on the 31st March, 1948. During the year the Bank continued to take up New Zealand Government Treasury bills at a discount rate of 1 per cent. As in the previous year, advances to the Government declined during the middle months of the year and increased as the year progressed, reaching £47-44 millions on the last Wednesday of December, 1948. From January to early March, 1949, advances remained at approximately £45-5 millions, subsequently being reduced to £3B millions at the end of March from receipts of income-tax. Other Advances Loan to. the Government of the Czechoslovak Republic. —Under the authority contained in section 4 of the Finance Act (No. 2), 1946, an agreement was signed in London between the Government of New Zealand and the Government of the Czechoslovak Republic on the 22nd January, 1948, under which the Reserve Bank of New Zealand, acting on behalf of the Government of New Zealand, was authorized to make available to the Czechoslovak Republic credit facilities up to £1,000,000 for the purchase in New Zealand of New-Zealand-grown wool. Investments. —Investments increased from £7-87 millions on the 31st March, 1948, to £34-10 millions on the 31st March, 1949. On the 19th August, 1948, investments totalled £ll-33 millions, of which £7-3 millions were held in London. Following revaluation as a result of the alteration of the rate of exchange, the latter were recorded at £5-9 millions, thereby reducing total investments in terms of New Zealand currency by £l-4 millions. During September and October, 1948, total investments increased by £6-6 millions as a result of — (1) The payment of £3-6 millions for purchase of stock taken up by the Reserve Bank as underwriter of the 3-per-cent. New Zealand Government stock issued in London in July, 1948 ; (2) The investment in New Zealand of £3 millions in 1-per-cent. Government stock maturing 1962. On the 13th January, 1949, the Government made a payment of £l9 millions to the Reserve Bank in the form of 1-per-cent. stock maturing on the 15th June, 1959. This was made on account of the compensation due under section 4 of the Finance Act, 1934, to the Reserve Bank and the trading banks for losses incurred in the appreciation of New Zealand currency on the 19th August, 1948. Of the total of £l9 millions, a sum of £l7-3 millions was due in respect of the overseas assets held by the Reserve Bank itself, while the balance of £l-7 millions was a first instalment of the sum due to the trading banks in respect of overseas funds held by them on account of the Reserve Bank. This latter sum was paid in cash to the trading banks by the Reserve Bank. An increase of £1 million in investments occurred on the 29th March, 1949, when a substantial portion of the last compensation payment was received in the form of 1-per-cent. stock maturing on 15th June, 1959. DISCOUNT RATE The minimum rate for the discounting of approved bills of exchange remained unaltered at 1| per cent. —the rate ruling since the 26th July, 1941.

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EXCHANGE RATE Since 9 p.m. on the 19th August, 1948, New Zealand currency has been at parity with sterling. This exchange-rate appreciation of the New Zealand currency is expressed in the alteration of the Eeserye Bank's official buying and selling rates for sterling to the following : Buying sterling .. .. .. £(N.Z.)IOO = £(stg.)loo Selling sterling* .. .. .. £(N.Z.)IOI *= £(stg.)loo * In respect of authorized transactions. In consequence, adjustments were made by the trading banks in the whole range of their exchange-rate quotations. The principal rates quoted by the trading banks as at the 31st March, 1949, for buying and selling sterling will be found in an Appendix to this report. The total liability of the Consolidated Fund in respect of compensation for the alteration of the rate of exchange was approximately £2O-6 millions including £l7-3 millions in respect of assets held by the Reserve Bank. The balance of £3-3 millions comprised the Reserve Bank's liability to the trading banks in respect of assets held by them as agents for the Reserve Bank and compensation for losses incurred under forward exchange contracts. This compensation was paid to the Reserve Bank by the Government, partly in stock and partly in cash, in settlement of the Government's liability to the banking system. Payment of the last instalment, amounting to £l-6 millions, was effected at the end of March, 1949. ACQUISITION OF NEW-ZEALAND-PRODUCED GOLD In his Budget address on the 19th August, 1948, the Minister of Finance stated that provision would be made immediately for purchase by the Reserve Bank of all gold produced in New Zealand. On the following day an Emergency Regulation brought into effect Regulation 5 of the Finance Emergency Regulations 1940 (No. 2), which requires all gold-producers to offer their entire production to the Reserve Bank for purchase " at such price as may be determined by the Minister having regard to the current price of gold in London." Acting through various branches of the trading banks situated in the goldproducing localities, the Reserve Bank, in accordance with these regulations, has purchased all gold offered at a uniform price of £8 Bs. 6d. per fine ounce. This price, which is based on the official price in London, provides the Bank with an expense margin to cover various costs incurred in handling the gold and shipping it overseas for refinement. This processing must in practice be carried out at one of the mints authorized to furnish " Good Delivery " certification in accordance with international monetary practices. To enable New Zealand manufacturers and dentists to obtain supplies of gold of local origin arrangements have been made with two licensed gold-dealers with refining facilities at their disposal to supply granulated pure gold and various gold alloys to these users under the Bank's general supervision. The maximum selling-price for these specialized forms of refined gold has been fixed at £9 per fine ounce. UNDERWRITING OF NEW ZEALAND GOVERNMENT LOANS IN LONDON (1) 3-per-cent. £(stg.)16,000,000 1966-68 Conversion Loan During the year under review a New Zealand Government loan bearing interest at 4| per cent, per annum maturing Ist March, 1948-58, became available for redemption in London. Of the total indebtedness of £(5tg.)19,225,465, stockholdings amounting to £(5tg.)3,225,465 were repaid in cash from sterling resources, while the holders of the balance £(stg.) 16,000,000 were offered conversion into a 3-per-cent. stock maturing Ist September, 1966-68. This conversion offer was accepted by the holders of £(5tg.)7,833,700

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of maturing stock, and the Reserve Bank, as. underwriter, took up the balance of the conversion loan in July and August, 1948. On the 31st March, 1949, the Reserve Bank's holdings of this conversion loan had been reduced to £(5tg.)4,000,000 as the result of sales on the open market, which yielded a net profit of £(5tg.)52,949 17s. (2) 3-per-cent. £(5tg.)7,000,000 1973-77 Conversion Loan During the year the Government exercised its option to repay a £(5tg.)7,322,579 loan maturing Ist February, 1949-54. Holders of £(5tg.)7,000,000 of this loan were offered conversion into a 3-per-cent. security maturing Ist June, 1973-77. The remainder of the loan was repaid in cash. This conversion operation, which was underwritten by the Reserve Bank, was most successful, the issue being heavily oversubscribed within a few minutes of the opening of the offer. MANAGEMENT OF PUBLIC DEBT IN NEW ZEALAND During the financial year ended the 31st March, 1949, the following Loans domiciled in New Zealand fell due for repayment:— (a) 2|-per-cent. £3,760,535, maturing 15th May, 1948 ; " (b) 4-per-cent. £3,484,980, maturing 30th November, 1948. (a) 2-|-per-cent. Loan Repayable 15th May, 1948 (£3,760,535) This was the short-term issue of the 2nd Liberty War L oan issued October/November, 1942. Trading-bank holdings in the 2£-per-cent. 15th May, 1948, loan were £2,215,690, and these were repaid in cash. An offer of reinvestment in the " tap " issue of 3-per-cent. 15th July, 1963-65, stock was made to the remaining holders, whose holdings totalled £1,544,845. The total number of holders, including trading banks, was 12,200, of whom 11,295 were repaid in cash, £3,529,160; and 905 holders reinvested to the extent of £231,375 in the " tap " loan. The relatively small proportion of reinvestments to repayments is probably attributable to the large number of holders in this loan who lent their money for patriotic reasons rather than for long-term investment. (b) 4-per-cent. Loan Repayable 30th November, 1948 (£3,484,980) This was the short-term loan issued in May, 1939, the price of issue being £99 per cent. The trading banks held £1,942,800, and, in keeping with the Government's policy, this was redeemed in cash, the offer of reinvestment being confined to the balance of the loan (£1,542,180), held by approximately 1,330 holders. Repayments in cash, including trading banks' holdings, were £2,988,635, and reinvestments in the " tap " loan were £496,345. Over-counter Issues On the Ist April, 1948, applications in hand for the " tap " issue of 3-per-cent. stock at par maturing 15th July, 1963-65 (opened on the 19th January, 1948), totalled £3,525,240, from 698 holders. Applications were accepted up to the 31st March, 1949, additional receipts up to that date being : Number of Applications. Amount. Cash subscriptions .. .. 2,255 £20,555,005

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An analysis of subscriptions to the " tap " loan for the period 19th January, 1948, to 31st March, 1949, is as follows :

Conversion Loan On the 15th March, 1949, the Reserve Bank, on behalf of the Government, issued a prospectus inviting applications at par for conversion into 2-|-per-cent. stock repayable 15th June, 1954-55, or 3-per-cent. stock repayable 15th June, 1961-64, in respect of the following New Zealand Government loans : Maturity. Amount. £ 2fper-cent. 15th June, 1947-49 .. .. 7,094,400 30,000 holders. 3-per-cent. 15th February, 1949-50 .. 9,712,860 17,000 4-per-cent. 15th May, 1949-52 .. .. 12,432,440 3,500 '£29,239,700 50,500 holders. The closing date of the conversion offer was the 14th April, 1949.

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— Applications. Amoxmt. Cash, subscriptions r i i 698 2,255 £ 3,525,240 20,555,005 (19/1/48 to 31/3/48) (1/4/48 to 31/3/49) Total cast subscriptions Reinvestment from loan which. matured on 15/5/1948 Reinvestment from 4-per-cent. loan which matured on 30/11/1948 2,953 905 396 24,080,245 231,375 496,345 4,254 24,807,965 Made up of —• Death-duty stock Ordinary registered stock 702 3,552 893,750 23,914,215 4,254 24,807,965

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TRADING BANKS The following combined figures are compiled from the monthly returns furnished by the trading banks to the Reserve Bank in accordance with statutory requirements :

Assets (£000)

Liabilities in New Zealand (£000)

Net overseas assets held by the trading banks increased during the year by £885,000, notwithstanding the adjustment in the rate of exchange on the 19th August, 1948. The actual increase for the year in terms of sterling was £(stg.)3-955 millions. The reduction during the year of £4-160 millions in the trading banks' holdings of Government securities was due to the repayment of 2|-per-cent. and 4-per-cent. stock on maturity. Consonant with the policy of the Government, the Reserve Bank has continued the supervision of certain classes of trading-bank advances, full co-operation in respeot of its administration being received from the trading banks. A decrease of £3-775 millions is recorded for trading-bank advances during the year under review, the total outstanding under this heading on the last balance day of March being £BB-745 millions.

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Last Wednesday in Month. Deposits at Reserve Reserve Bank Total Cash in New Net Overseas Securities. Advances and Bank. Notes. Zealand.* Assets. Government. Other. Discounts. 1948 March 46,995 7,801 56,316 15,864 18,593 1,972 93,788 April 51,943 7,992 61,463 15,039 18,593 1,966 92,964 May 58,847 8,046 68,405 14,662 16,378 1,954 89,110 June .. 62,030 7,251 70,797 16,170 16,377 1,950 86,850 July .. 63,584 7,419 72,515 14,839f 16,377 1,931 83,799 August 66,948 7,532 75,984 8,863 16,377 1,916 83,859 September 62,123 7,373 70,946 9,715 16,377 1,914 86,724 October 62,434 8,025 71,853 9,886 16,377 1,910 84,931 November 61,778 8,281 71,466 12,273 16,377 1,901 82,166 December 1949 January 65,663 8,126 74,952 13,203 14,431 1,898 80,097 74,015 9,523 85,150 14,038 14,431 ],869 80,042 February 77,159 8,806 87,520 15,536 14,431 1,855 80,010 March .. 59,350 7,170 68,155 16,749 14,432 1,850 89,606 * Includes deposits at Reserve ] 3ank, notes and coin. t On and after the 20th August , 1948, overse as assets and liabilities converted to New Zealand currency at rate £(stg.)100 = £(N.Z.)100.

Last Wednesday in Month. Demand Liabilities. Time Liabilities. Total Demand and Time Liabilities. 1948 March 142,348 39,098 181,446 April 139,244 39,054 178,298 May 143,242 39,883 183,125 June 137,907 41,646 179,553 July 134,992 41,849 176,841 August 137,623 41,841 179,464 September 132,498 41,995 174,493 October 133,300 41,301 174,601 November 137,063 40,889 177,952 December 144,033 39,872 183,905 1949 January 147,395 38,834 186,229 February 151,037 38,607 189,644 March 145,501 37,512 183,013

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Classification of Trading Banks' Advances as at the Last Balance Day in March (£000)

NET OVERSEAS ASSETS On the last Wednesday in March, 1948 (31st March), the net overseas assets held by the New Zealand banking system on account of New Zealand business totalled £B4-9 millions, while on the last Wednesday in March, 1949 (30th March), the figure had fallen to £67-4 millions, a decrease of £l7-5 millions during the year. This reduction is due almost entirely to the exchange rate appreciation which occurred on 19th August, 1948. The following table shows changes in the amount of the net overseas assets of the banking system during the year ; columns " A," " B," and " C," being expressed in sterling, and column " D " in New Zealand currency.

Net Overseas Assets* (Reserve Bank and Trading Banks)

* Reserve Bank's sterling exchange and trading banks' assets overseas in respect of New Zealand business, less overseas liabilities. t On and after 20th August, 1948, overseas assets and liabilities converted to New Zealand currency at rate : £(stg.)loo = £(N.Z.)IOO.

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— 1946. 1947. 1948. 1949. Farmers 19,308 21,626 20,030 19,313 Dairy companies, freezing-works, &c. .. 8,582 8,847 8,255 9,212 Other manufacturing and productive 8,867 12,968 20,159 23,002 industries Merchants, wholesalers — (a) Mainly importers 2,455 4,262 7,962 5,925 (6) Others 919 1,402 4,924 2,155 Ketailers 3,071 4,645 9,505 7,659 Transport 875 1,250 1,752 1,893 All others 13,724 17,637 19,933 19,586 Total advances 57,801 72,637 92,520 88,745

Reserve Bank Trading Banks Total Total Last Wednesday in Month. (£(stg.)000). (£(8tg.)000). (f(stg.)OOO). (£(N.Z.)000). "A" "B" " C " "D" 1948 March 55,687 12,794 68,481 84,916 April .. 61,234 12,128 73,362 90,969 May 63,007 11,824 74,831 92,791 June 64,119 13,040 77,159 95,677 July 62,310 11,966 74,276 92,103 August f .. 63,464 8,863 72,327 72,327 September 53,643 9,715 63,358 63,358 October 47,328 9,886 57,214 57,214 Ndvember 41,521 12,273 53,794 53,794 December .. 43,331 13,203 56,534 56,534 1949 January 43,402 14,038 57,440 57,440 February 47,028 15,536 62,564 62,564 March 50,697 16,749 67,446 67,446

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EXCHANGE CONTROL TRANSACTIONS Receipts from exports during the past financial year totalled £143-9 millions, an increase of approximately £9-6 millions over receipts from this source during the previous year. Payments in respect of imports for the year ended the 31st March, 1949, totalled £lO9-0 millions, compared with £124-8 millions for the previous year. The following table sets out in detail the Dominion's external receipts and payments for the past two years :

Exchange control Transactions* (£000)

* In this table foreign currencies have been converted into New Zealand currency at the rate of exchange ruling at the time of each transaction —viz., on the basis of £(N.Z.)125 = £(stg.)loo up to and including 19th August, 1948, and thereafter on the basis of parity with sterling. f For the year ended March, 1948, on the receipts side, only a total figure (£17,894,000) for interest and dividends, legacies, private debts and other capital receipts is available and is included in " Total receipts." On the payments side, only a total figure (£4,590,000) of private debts and other capital payments is available and is included in " Total payments." t Excluding remittances for imports under departmental certificates, but including remittances for general purposes, a portion of which is used in payment for Government imports.

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Year Ended 31st March, 1948. 1949. Current items — Receipts Exports 134,274 143,896 Other trade transactions 8,507 8,187 Commissions, royalties, and insurance 813 828 Donations and allowances 816 1,080 Travellers' expenses 844 787 Interest and dividends t 1,015 Legacies t 1,345 Private debts due in New Zealand t 782 Receipts by High Commissioner in London 8,529 577 f 158,497 Capital items — Realization of overseas balances 1,082 441 Other capital receipts t 10,944 Total .. 172,760f 169,882 Current items — Payments Imports 124,775 109,025 Other trade transactions 4,497 5,593 Commissions, royalties, and insurance 984 1.441 Donations and allowances 1,531 1,225 Travellers' expenses 2,390 2,645 Interest and dividends 7,607 6,377 Legacies 1,507 1,588 Private debts due overseas t 3,534 Government payments % (excluding imports and debt services) 24,000 22,077 Film hire and entertainments 566 627 t ~ 154,132"" Capital items — Debt Repayment — Government 14,509 3,242 Local body 84 1,485 Other capital payments f 12,914 Total .. 187,039f 171,773

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MONEY SUPPLY The table below sets out the changes in the total amount of money in the form of coin and notes in public circulation and bank demand deposits from 1939 to 1949 :

Amount of Money in New Zealand in the Form of Coin, Notes, and Bank Demand Deposits* (£ millions)

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Last Balance Day in March. ■ Coin. Notes. Trading Bank Demand Liabilities. Government Deposits at Reserve Bank. Other Demand Liabilities Reserve Bankf. Total Amount of Money. Annual Increase. 1939 1-38 11-18 38-45 3-82 1-03 55-9 0-6 1940 . • 1-62 14-84 46-64 6-78 0-11 70-0 14-1 1941 . 1-69 17-16 53-68 6-27 0-93 79-7 9-7 1942 . 1-85 20-18 61-52 13-46 0-21 97-2 17-5 1943 . 2-23 26-18 77-14 15-56 0-37 121-5 24-3 1944 . 2-47 31-19 85-09 18-09 0-89 137-7 16-2 1945 . 2-62 34-19 93-66 16-80 0-69 148-0 10-3 1946 . 2-89 36-64 110-92 29-21 0-79 180-5 32-5 1947 . 3-04 39-63 126-79 17-43 0-55 187-4 6-9 1948 . 3-17 40-76 142-35 23-15 0-58 210-0 22-6 1949 . 3-19 42-20 145-50 22-25 0-40 213-5 3-5 Monthly 1948— March 3-17 40-76 142-35 23-15 0-58 210-0 April 3-15 40-32 139-24 16-12 0-39 199-2 May 317 40-34 143-24 10-30 0-36 197-4 June 3-18 40-54 137-91 12-00 0-45 194-1 July 3-18 40-53 134-99 10-85 0-63 190-2 August 3-18 40-91 137-62 9-37' 0-38 191-5 September 3-18 40-72 132-50 11-94 0-17 188-5 October 3-20 40-76 133-30 8-92 0-25 186-4 November 3-20 40-68 137-06 9-33 0-47 190-7 December 3-34 44-87 144-03 8-87 0-37 201-5 1949— January 3-15 40-88 147-39 8-98 0-63 201-0 February 3-21 40-84 151-04 11-64 0-27 207-0 March 319 42-20 145-50 22-25 0-40 213-5 * Excluding de aosits held at savings-banks . t Excluding ba iances held b> the trading-r. anks.

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The increase of £3-5 millions in the money-supply between 1948 and 1949 is the smallest annual increase in year ended March comparisons since 1939. Summaries of the causes of this increase and of the total increase of £157*7 millions since the end of March, 1939, are shown in the following table :

Causes of Changes in the Amount of Money (£ millions)

*As shown by changes in Reserve Bank's sterling exchange plus overseas investments, and trading banks' assets overseas in respect of New Zealand business, less overseas liabilities in respect of New Zealand business. f Minus sign indicates shift from demand to time liabilities. Apart from the amount of £600,000 paid in cash by the Government to the Keserve Bank, the adjustments consequent on the exchange-rate appreciation neither increased nor decreased the amount of money in circulation in New Zealand in the form of coin, notes, and bank demand deposits, and are therefore not included in the above table. GENERAL The banking figures reviewed in this report reflect the buoyancy that still characterizes economic conditions in New Zealand. For several years there has been a sharp upward trend in the values of internal and external trade, production, and national income. Official statistics show that New Zealand's national income increased from £193 millions in 1938-39 to £422 millions in 1947-48. While this would appear to indicate a great increase in national prosperity, it is important to note that real prosperity depends on the actual physical volume of production rather than on its monetary valuation. The extent to which real standards of living are raised is measured by the improvement that occurs in living and working conditions, in the quantities, qualities, and kinds of goods produced, and their equitable distribution. The increase in the money value of the national income during recent years is partly due to a rise in the volume of production, but its main cause is to be found in the high prices that have resulted from war and post-war circumstances both here and overseas. During times of changing conditions such as arose during the war and still exist, price control is indispensable. In New Zealand, with its exceptionally large export and import trade per head of the population, the best efforts to stabilize internal prices are inevitably limited to some extent by the effect of price changes overseas. This fact needs to be kept always in mind in shaping our economic and our financial policies and practice.

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Last Balance Day in March. 1939-49 (Ten Years). 1948-49 (One Year). {a) Overseas transactions* +84-4 +5-8 (b) Bank credit— (1) Eeserve Bank advances.. +27-8 +3-9 (2) Reserve Bank investments in New Zealand + 4-1 +3-0 (3) Trading bank advances and discounts +34-1 -4-1 (4) Trading bank investments in New Zealand + 6-0 -4-3 (5) Total bank credit (1) to (4) (+72-0) (-1-5) (c) Shift from time to demand liabilities of trading banks f - 7-6 +1-6 (d) Other items 4- 8-9 -2-4 Total change +157-7 +3-5

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We are now at the stage when we have more than full employment —that is, there are more vacancies in industry and commerce than there are applicants to fill those vacancies. Looking at our position from the financial viewpoint, therefore, it is clear that r though monetary expansion can give a stimulus to employment and to prosperity when a state of under-employment exists, it cannot do so now. Increasing the money supply in New Zealand could not under present conditions cause our standard of living to rise ; it could only increase the problem of restraining prices. But even though the standard of living in New Zealand is good, we want not only to maintain it, but to improve it. This, as already indicated, can best be achieved by an increase in the volume and efficiency of production. So far as monetary policy is concerned, our best course from a long-term point of view is to keep careful and watchful guard over the purposes for which new money is issued, whether such new money comes from the central bank or from the trading banks. Keeping always a clear sense of proportion, no opportunity should be lost to reduce central bank credit by reasonable amounts ; to the extent that this is done, the central bank will be all the stronger to help should the need again arise to use credit expansion to stimulate employment and the demand for goods and services. STAFF The Board of Directors desires to place on record its appreciation of the efficient manner in which the staff has discharged its duties during the past year. The standard of work performed in the Bank has remained at a consistently high level. For and on behalf of the Board of Directors : B. C. Fussell, Governor. A. Boss, Deputy Governor. 30th June, 1949.

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APPENDIX

EXCHANGE RATES In conformity with the appreciation of the exchange value of New Zealand currency to parity with sterling, trading banks were quoting the following rates at the 31st March, 1949 : New Zealand on London* (On the basis of £(stg.)100) Buying. Selling. Telegraphic transfers .. £(N.Z.)IOO 7 6 £(N.Z.)IOI 0 0 Air Mail Air Mailf Sea Mail. and Sea Mail. On demand .. £(N.Z.)IOO 0 9 £(N.Z.) 99 16 9 £(N.Z.)IOI 0 0 3 days' sight .. „ 100 0 0 99 16 0 No quotation. 30 days' sight .. „ 99 17 3 „ 99 13 3 £(N.Z.)IOO 19 3 60 days' sight .. „ 99 14 0 „ 99 10 0 „ 100 18 6 90 days' sight .. 99 10 9 99 6 9 „ 100 17 6 120 days' sight .. 99 7 6 „ 99 3 6 No quotation. Sterling notes .. £(N.Z.) 98 1 9 £(N.Z.)IOI 0 0 London* on New Zealand (On the basis of £(stg.)100) Buying. Selling. Telegraphic transfers .. £(N.Z.)IOI 0 0 £(N.Z.)IOO 7 6 ■ Air Mail Air Mailf. Sea Mail. and Sea Mail. On demand .. £(N.Z.)IOI 8 6 £(N.Z.)IOI 17 6 £(N.Z.)IOO 7 6 30 days' sight .. „ 101 15 3 „ 102 4 3 No quotation. 60 days' sight .. „ 102 2 0 „ 102 11 0 90 days' sight .. „ 102 8 9 „ 102 17 9 120 days' sight .. „ 102 15 6 „ 103 4 6 New Zealand on Other Countries Australia — Buying. Selling. Telegraphic transfers £(A,)124 10 9 per £(N.Z?)lO0- £(A.)124 0 0 per £(N.Z.)IOO On demand ... „ „ Australian notes .. £(A.)126 14 '3 per (£N.Z.')IOO Canada — Telegraphic transfers $402• 95 per £(N.Z.)IOO $396• 96 per £(N.Z.)IOO OndemandJ .. $404-45 Canadian dollar notes and coin .. $4ll-53 „ „ United States of America — Telegraphic transfers $402• 95 per £(N.Z.)IOO $396 ■96 per £(N.Z.)IOO OndemandJ .. $403-69 U.S. dollar notes and coin .. .. $4lO-75

* These rates apply to all parts of the British Isles. + Customer pays air-mail postage. J Sea-mail.

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RESERVE BANK OF NEW ZEALAND Profit and Loss Account For Year Ended 31st March, 1949 £ s. d, £ s. d. General charges, including salaries, rent, cost of Balance of profit after making provision for note issue, and other expenses .. .. 290,548 18 6 rebate on Treasury bills not yet due and for Balance, being profit for year j .. .. 739,930 15 1 sundry liabilities and contingencies .. 1,030,479 13 7 £1,030,479 13 7 £1,030,479 13 7 Promt and Loss Appropriation Account £ s. d. £ s. d. Payments to New Zealand Government in terms Balance as at Ist April, 1948 .. .. 645,593 8 8 of section 36 of Reserve Bank of New Zealand Balance from Profit and Loss Account .. 739,930 15 1 Act, 1933 .. .. "i .. .. 645,593 8 8 Balance .. .. .. .. .. 739,930 15 1 £1,385,524 3 9 £1,385,524 3 9

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RESERVE BANK OF NEW ZEALAND— continued Balance-sheet as at the 31st March, 1949 Liabilities £ s. d. Assets £ s. d. Genera] Reserve Fund .. .. .. 1,500,000 0 0 Gold (at cost) .. .. .. .. 3,232,981 6 5 Banknotes .. .. .. .. 49,356,869 10 0 Sterling exchange .. .. .. .. 50,596,284 16 9 Demand liabilities—- Subsidiary coin .. .. .. .. 278,875 18 3 (a) State .. .. .. .. 20,572,329 1 0 Advances—(6) Banks .. .. .. .. 59,523,072 14 8 To State or State undertakings— .. . . (c) | Other .. .. .. .. 966,521 13 1 (1) Marketing organizations .. ~ 4,164,966 8 7 Liabilities in currencies other than New Zealand (2) For other purposes .. .. 38,000,000 0 0 currencv .. •• •• •• 24,345 6 8 Other .. .. .. .. .. 4,867,548 3 7 Other accounts .. .. .. .. 3,472,300 2 4 Investments .. .. .. .. 34,095,301 0 7 Profit and Loss Appropriation Account - .. 739,930 15 1 Other assets .. .. .-. .. 919,411 8 8 £136,155,369 2 10 £136,155,369 2 10

N.B.—Holdings of sterling have been converted into New Zealand currency at the rate of £(stg) 100=£(N.Z.) 100. E. C. Fussell, Governor. A. Eoss, Deputy Governor. W. E. Eggers, Chief Accountant. Auditors' Certificate and Report We have audited the balance-sheet as at 31st March, 1949, above set forth. Subject to the qualification that certificates confirming the balances in respect of advances, aggregating £4,867,548 3s. 7d., made to the Governments of two other countries have not yet been received by us, we have obtained all the information and explanations we have required. We have accepted the certificate of the Bank of England as to assets held on account of the Reserve Bank of New Zealand. In our opinion, the Balance-sheet is properly drawn up so as to exhibit a true and correct view of the state of the affairs of the Bank as at 31st March, 1949, according to the best of our information and the explanations given to us and as shown by the books of the Bank. F* H HARM° MBIE } Public Accountants > Auditors. Wellington, New Zealand, 30th June, 1949. Approximate Cost of Paper. — Preparation, not given; printing (074) copies), £44.

±sy Authority: R, E. Owen, Government Printer, Wellington.— 1949. Price 6d.}

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