RESERVE BANK OF NEW ZEALAND. ANNUAL REPORT OF THE BOARD OF DIRECTORS AND STATEMENT OF ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 1938.

Appendix to the Journals of the House of Representatives, 1938 Session I, B-16

B—l6.

1938. NEW ZEALAND.

RESERVE BANK OF NEW ZEALAND. ANNUAL REPORT OF THE BOARD OF DIRECTORS AND STATEMENT OF ACCOUNTS FOR THE YEAR ENDED 31st MARCH, 1938.

Presented to both Houses of the General Assembly pursuant to Section 20 of the Reserve Bank of New Zealand Amendment Act, 1936.

ANNUAL REPORT.

To the Hon. The Minister of Finance: The Board of Directors presents herewith a general report on the operations of the Reserve Bank during the financial year ended the 31st March, 1938. After making provision for rebate on unmatured British Treasury bills, depreciation in other assets, and superannuation and retiring allowances for the staff, the net profit for the year totalled £195,811 3s. 7d., which amount has been paid into the Public Account to the credit of the Consolidated Fund in accordance with the provisions of section 36 of the Reserve Bank of New Zealand Act, 1933. The increase of £48,668 10s. Id. on the previous year's net profit was due, partly to the fact that the Dairy Industry Account of the Primary Products Marketing Department (which has been overdrawn since its inception) was in operation throughout the year, as compared with about six months in the previous year, partly to a larger average holding of investments, and partly to increased sales of sterling. As pointed out in last year's report, however, whilst a net reduction in the Bank's sterling assets yields an immediate exchange profit, it does so at the expense of future earning-power. Ever since the Bank commenced operations its profits have been affected by the low rate at which British Treasury bills (one of the main sources of the Bank's income) have been obtainable in London. The average rate yielded by such bills acquired by the Bank last year was lis. 0-96 d. per centum, as compared with lis. 2d. and lis. l|d., respectively, for the previous two years. As a partial set-ofl against higher income, the expenses of the Bank were greater by about 10 per cent. Amongst the principal causes of the higher expenditure were the further supplies of bank-notes necessitated by the expanding note issue, and the fact that the public debt in New Zealand was managed by the Bank for the whole year, as against only half of the previous year. Both of those factors resulted in an increase in the cost of the Staff of the Bank ; and, in addition, the total amount of salaries was raised by certain adjustments made during the year, as well as by the normal increase in the aggregate salaries, which may be expected to continue for some years in view of the comparatively low age of the members. The principal changes in the balance-sheet, as compared with the figures at the close of the previous year, were as under :— Liabilities. Bank-notes. The total of notes outstanding was higher at all times during the year than at the corresponding dates of the previous year, and the amount outstanding at the end of the year (£13,553,546 10s.) exceeded the figure at the 31st March, 1937, by £431,736. These figures represent the aggregate of the notes held by the trading banks and by the public. What may be called the effective note-circulation —that is, the notes in the hands of the public— increased from £8,790,175 on the 22nd March, 1937, to £9,536,178 on the 28th March, 1938. (The figure for the 29th March, 1937, is not used for comparison, as it was affected by the temporary demand for notes for the Easter holidays.) The expansion of the circulation during the past year was to be expected, having regard to the increase in the turnover in domestic trade and in the national wages bill during the year. Demand Liabilities. (a) State. —The aggregate of these balances was £1,715,454 4s. 7d. below the corresponding total at the end of the previous financial year. This decrease can be accounted for in part by the liquidation of " Advances to the State for other Purposes," which stood at £800,000 (including £100,000 for the Housing Account) on the 31st March, 1937. (b) Banks. —The reduction of £3,392,375 lis. 6d. in these balances corresponds, approximately, to the net sales of sterling by, and withdrawals of bank-notes from, the Reserve Bank.

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The banks maintained balances in excess of their statutory requirements during the whole of the year. The aggregate of the statutory minimum balances on the 31st March, 1938, was £3,494,429. There was no occasion during the year to alter the percentages of those minima to demand and time liabilities in New Zealand under the powers conferred by section 23 of the Reserve Bank of New Zealand Amendment Act, 1936. (c) Other. —The operations of the State Advances Corporation were mainly responsible for the decrease of £635,969 13s. Bd. under this heading. Assets. Sterling Exchange. The sterling exchange eligible as a reserve for notes in circulation and other demand liabilities decreased during the year by the equivalent of £(N.Z.)2,852,696 2s. 2d. ( = £(sterling)2,3oo,s6l 7s. 7d.). Any surplus London funds available from the proceeds of the sale of dairy-produce, after providing for the Government's requirements in London, are made available to the trading banks under a special arrangement. The decrease in the Reserve Bank's holding of sterling was due mainly to further purchases by them, outside the scope of this arrangement, in excess of their sales to the Bank. Subsidiary Coin. The increase of £72,822 16s. Id. represents the replenishment of the Bank's holding of silver coin. This had been allowed to fall below normal requirements by the end of the previous year in anticipation of the arrival of King George VI coins, which have since been received. Advances. (a) To the State or State Undertakings : — (i) Primary Products Marketing Department: This sab-title was altered during the year so as to include any overdraft on the Internal Marketing Account as well as the overdraft on the Dairy Industry Account. At the close of the previous year the overdraft on the Dairy Industry Account totalled £6,225,908 Bs. 7d. By the 31st March, 1938, the total of the combined overdrafts was smaller to the extent of £1,025,059 lis. 2d. Further particulars of the operations of the above-mentioned accounts are given later. (ii) Other Purposes : Nil. During the year accommodation granted against Treasury bills in connection with the Government's housing scheme rose from £100,000 to £1,300,000. In the month of March, however, when Government balances were swollen as a result of revenue collection, the Treasury utilized some available funds by temporarily relieving the Bank of all the Treasury bills which had been taken up in this connection. (b) Other. —As in the previous year, a certain amount of temporary accommodation was granted to the banking system to assist in tiding over the period during which the maximum effect of the collection of the national revenue was being felt; but repayment was effected before the end of the financial year. Investments. Despite the fact that the average holdings included under this heading were higher than during the previous year, there was a decrease for the year of £482,925, partly on account of the further temporary utilization of available balances on public accounts consequent upon .the collection of revenue. Advances to Primary Products Marketing Department. Particulars of the accommodation granted to the State during the year through the medium of the two accounts operated by this Department are shown in the following tables : —

(a) Dairy Industry Account.

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Repayments. t> t c r J \ Balance oi tw,, Amounts i , x Z ~ Z Advance advanced. c Zealand outstanding at Sterling. ; JhjCjiiivalent 01 In IN ew Zealand. lotal. End of Month Sterling. (000 omitted.) 1937. £(N„Z.) £ £(N.Z.) £(N.Z.) £(N.Z.) £(N.Z.) April .. 1,884 1,694 2,100 84 2,184 5,926 May .. 1,520 2,177 2,699 74 2,773 4,673 June .. 1,750 1,377 1,707 108 1,815 4,608 July .. 1,600 1,724 2,138 72 2,210 3,998 August .. 1,920 1,186 1,471 76 1,547 4,371 September .. 1,900 1,823 2,261 55 2,316 3,955 October .. 2,270 1,658 2,056 24 2,080 4,145 November .. 2,188 1,382 1,714 28 1,742 4,591 December .. 3,843 1,813 2,248 23 2,271 6,163 1938. January .. 2,920 1,902 2,359 160 2,519 6,564 February .. 1,932 1,932 2,396 183 2,579 5,917 March .. 2,394 2,518 3,122 45 3,167 5,144 Totals .. 26,121 21,186 26,271 932 27,203

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(b) Internal Marketing Account.

The Internal Marketing Account was opened in accordance with the provisions of the Primary Products Marketing Amendment Act, 1937 ; but, as shown above, the overdraft on that account has not so far assumed more than modest proportions. The overdraft on the Dairy Industry Account on the 31st March, 1938, represented the amount then outstanding on account of purchases of dairy-produce in respect of the current year's production and, in addition, the deficit of approximately £300,000 resulting from the first year's operations under the scheme of guaranteed prices. In accordance with the provisions of the legislation relating to the Primary Products Marketing Department, all moneys derived from the sale of produce by the Department must be paid into one or other of the above accounts and thus be applied in reduction of any overdraft which may be outstanding on the relative account at the time. The measure of protection which is thereby afforded to the Bank, however, does not constitute specific security for the overdrafts, inasmuch as the produce is neither hypothecated to nor controlled by the Bank ; and, moreover, the proceeds may fall short of the total cost, including administrative and other expenses. It is understood that the deficit in respect of the first year's operations on the Dairy Industry Account is the responsibility of the Government and not of the dairy-farmer ; but, as no provision has yet been made as to the source from which that portion of the overdraft is to be met, it is not secured either directly or indirectly. In view of the prohibition of unsecured loans or advances contained in section 14 (d) of the Reserve Bank of New Zealand Act, 1933, the Bank appeared to be acting ultra vires in granting the overdrafts on the two accounts of the Primary Products Marketing Department; but the statutory position in this matter has now been regularized by section 13 of the Finance Act (No. 2), 1937, which provides that advances in aid of the Primary Products Marketing Department accounts shall not be deemed to be, or to have been, unsecured. Nevertheless, the Board is of the opinion that all borrowings by the State, whether or not wholly or partly covered by other assets, should be secured on the Consolidated Fund in accordance with the usual practice. Discount Rate. The Reserve Bank has had no occasion during the year to alter its discount rate, which has remained at 2 per cent, since the 29th June, 1936. Despite the comparative lowness of this rate, no bills were submitted to the Bank for discount or rediscount. Exchange Rate. The rates at which the Reserve Bank has been prepared to pay its notes in sterling and to issue notes in exchange for sterling or gold have remained unchanged at £125 (N.Z.) and £124 (N.Z.), respectively, for £100 sterling. The trading banks also detained their selling and buying rates for telegraphic transfers of sterling at their previous year's levels of £124 10s. (N.Z.) and £124 (N.Z.), respectively, for £100 sterling. Management of the Public Debt. There were no new issues to the public during the year, nor were there any offers of conversion of stock held by the public.

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Date. Advances. | Receipts. Balance. (000 omitted.) 1937. £(N.Z.) £(N.Z.) £(N.Z.) September .. . . . . . . 14 30 Cr. 16 October .. .. .. 61 58 Or. 13 November .. .. .. .. 53 50 Cr. 10 December .. . . .. .. 57 56 Cr. 9 1938. January .. . . .. .. 114 45 Dr. 60 February .. .. .. .. 49 52 Dr. 57 March .. .. .. .. .. 68 69 Dr. 56 Totals 416 360

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State Advances Corporation. On the 10th May, 1937, the Bank undertook the management of all securities issued by the State Advances Corporation. The list of applications for the 3J per cent, stock or debentures (series " B "), due Ist June, 1944, offered to the public in the prospectus issued by the Bank on the 16th February, 1937, was still open on the 31st March, 1938. New Zealand Government Securities. New Zealand Government securities in the Dominion remained relatively stable during the year, as indicated in the following table of approximate market prices and yields of certain representative loans at the end of each quarter : —

Prices and yields of New Zealand Government stocks quoted on the London market moved between somewhat wider limits, as shown by the following table : —

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, 1943-46, 1946-49, 1952-55, | 1953-57, 4 per Cent. 4 per Cent. 4 per Cent. | 3| per Cent. Market Price (excluding Accrued Interest). 1937. £ s. d. £ s. d. £ s. d. £ s. d. March .. .. .. .. 101 2 6 101 10 0 101 17 6 June .. .. .. .. 102 12 6 103 2 6 103 7 6 98 12 6 September .. .. .. 102 12 6 103 5 0 104 0 0 98 5 0 December .. .. .. 101 15 0 102 5 0 102 7 6 96 15 0 1938 March .. .. .. .. 101 17 6 102 10 0 103 5 0 97 15 0 1937 Yield to Final Maturity Date. March .. .. .. 3 15 8 3 15 10 3 16 4 June .. .. .. .. 3 11 5 3 12 6 3 14 1 3 11 3 September .. .. .. 3 11 5 3 12 0 3 13 0 3 11 10 December .. .. .. 3 13 5 3 14 1 3 15 6 3 14 1 1938. March .. .. .. .. 3 13 1 3 13 4 3 14 0 3 12 7

I I Date 1956-71, I 1948-58, 1943-63, 1949-54, 1952-55, 5 per Cent. 4£ per Cent. 4 per Cent. 3£ per Cent. 3 per Cent. Market Price ( excluding Accrued Interest). 1937. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. March .. .. .. .. 113 10 0 103 13 9 100 18 9 98 10 0 91 16 3 June .. .. .. .. Ill 5 0 101 1 3 98 13 9 95 12 6 88 5 0 September .. .. .. 112 7 6 104 12 6 100 11 3 97 13 9 89 5 0 December .. .. .. 113 13 9 103 15 0 100 1 3 97 11 3 90 0 0 1938. March .. .. .. .. 110 18 9 101 17 6 99 2 6 95 3 9 87 5 0 1937. Yield to Final Maturity Date. March .. .. .. .. 449 444 3 18 6 3 12 0 3 12 1 June .. .. .. .. 471 480 414 3 16 9 3 17 11 September .. .. .. 4 5 10 4 2 11 3 17 9 3 13 4 3 16 7 December .. .. .. 446 441 3 19 7 3 13 8 3 15 4 1938. March .. .. .. .. 473 469 40 10 3 17 8 405

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Overseas Funds, Reserve Bank and Trading Banks. During the year there was a diminution of £(N.Z.)7,820,000 in the combined net overseas assets of the whole banking system in respect of New Zealand business, as shown by the following comparions of the figures for the last Mondays in March, 1937, and March, 1938, respectively : —•

The lowest point reached during the year —viz., £22,985,000, on the 31st January, 1938—was £5,095,000 less than the lowest figure for the previous financial year (on the 28th December, 1936). The figures relating to external trade shown later in this report indicate that the decrease in overseas funds resulted in the main from a shrinkage in the surplus of exports over imports. Trading Banks. The following combined figures are compiled from the monthly returns made by the trading banks to the Reserve Bank in accordance with statutory requirements : —

The percentage of cash to liabilities shown above may appear relatively high when compared with the cash ratios of banks in the United Kingdom; but it must be remembered that the existence of a short-term money-market enables the latter to reinforce their cash reserves with money at call or short notice and also bills of exchange and certain other securities which can immediately be converted into cash. On the other hand, the banks trading in the Dominion can convert into New Zealand currency without delay any liquid funds they hold in London in respect of New Zealand business. The outstanding variations disclosed by the above figures are the increase of £8,883,000 in the advances and discounts on the one hand and the decrease of £5,651,000 in the overseas assets on the other. The aggregate of the unexercised overdraft authorities granted by the trading banks fell during the year by £431,026 to £24,799,432.

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i Date. j Reserve Bank. Trading Banks. Total. (Expressed in New Zealand currency.) (000 omitted.) £ £ £ 29th March, 1937 .. 19,099 15,286 34,385 28th March, 1938 .. 16,930 9,635 26,565 Decrease .. 2,169 5,651 7,820

Percentage Liabilities in New Zealand. of Bankers' Advances Net tijjnVm'WtoToUl Date. and Overseas ,, , Demand and Discounts. Assets. ' Time LiabiliDemand. Time. Total. ties in New Zealand. (000 omitted.) 1937. £ £ £ £ £ £ March 29 .. .. .. 36,898 31,975 68,873 46,954 15,286 12,808 18-6 April 26 .. .. .. 38,519 32,464 70,983 47,485 16,284 14,736 20-8 May 31 .. .. .. 36,667 32,506 69,173 48,033 15,114 14,836 21-4 June 28 .. .. .. 36,053 32,948 69,001 47,711 15,413 14,550 21-1 July 26 .. .. .. 34,825 33,304 68,129 48,171 14,055 14,452 21-2 August 30 .. .. .. 33,699 33,361 67,060 49,476 11,968 14,319 21-4 September 27 .. .. 32,890 33,051 65,941 50,696 10,919 13,299 20-2 October 25 .. .. .. 33,312 32,312 65,624 52,647 10,429 11,923 18-2 November 29 .. .. 32,622 32,337 64,959 54,781 8,180 11,274 17-4 December 27 .. .. 33,575 32,092 65,667 54,002 6,662 13,162 20-0 1938. January 31 .. .. 36,186 31,632 67,818 53,313 6,755 15,323 22-6 February 28.. .. .. 36,476 31,371 67,847 53,460 8,269 13,109 19-3 March 28 .. .. .. 37,006 31,225 68,231 55,837 9,635 10,528 15-4 * Bankers' cash includes balances with Reserve Bank, Reserve Bank notes and coin, but excludes London funds.

8.—16.

This year the Reserve Bank is enabled, by the courtesy and with the assistance of the trading banks, to make available the following quarterly analysis of their aggregate advances : —

Review of Trade, Prices, and Business. (a) External Trade. —The movement in the balance of merchandise trade with all countries, after allowing for freight and other charges, is indicated by the following table, which is based on figures published by the Government Statistician. The totals of exports and imports are shown for the twelve months to the end of each month during the year, with the corresponding surplus of exports : —

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Figures at end of Month. 1937. March, 1938. March. June. September. December. (000 omitted.) 1. Farmers — £ £ £ £ £ (a) Mainly dairy .. .. 4,703 5,101 5,317 5,192 4,980 (b) Mainly wool .. .. 5,418 5,368 5,984 6,459 6,058 (c) Mainly meat.. .. .. 1,948 1,925 2,104 2,238 2,188 (d) Mainly agricultural .. .. 316 322 327 385 378 (e) Mixed .. .. .. 4,141 4,058 4,418 4,672 4,499 2. Industries allied to primary production— (a) Dairy companies, factories, &c. 1,251 1,279 1,068 1,135 1,732 (b) Freezing-works, meat companies, 922 852 315 757 1,735 &c. (c) Woollen-mills .. .. 622 386 534 483 825 (d) Other .. .. .. 1,347 1,652 1,497 1,385 1,924 3. Other manufacturing and productive 3,886 3,856 4,065 4,090 4,642 industries 4. Merchants and wholesalers — (a) Mainly importers .. .. 3,311 3,084 3,895 4,026 4,190 (b) Other .. .. .. 1,353 1,303 1,274 1,271 1,059 5. Retailers .. .. .. .. 3,301 3,505 3,855 4,083 4,080 6. Transport .. .. .. 561 582 614 638 709 7. Local bodies, municipal authorities, 498 845 845 1,303 719 public utility concerns, &c. 8. Stock and station agents .. .. 642 688 1,118 1,929 1,350 9. Hotels, restaurants, &c. .. .. 931 860 1,071 1,217 1,189 10. Financial companies, societies, &c. .. 1,585 1,685 1,847 2,179 2,150 11. Professional .. .. .. 1,364 1,450 1,407 1,387 1,497 12. Private individuals .. .. 4,862 5,156 5,236 5,391 5,551 13. Miscellaneous .. .. .. 3,191 3,218 3,154 3,202 3,609 Totals .. .. .. 46,153 47,175 49,947 53,422 55,064

Year ended Exports. Imports. Surplus of Exports. (Expressed in New Zealand currency.) (000 omitted.) 1937. £ £ £ March .. .. .. .. .. 60,234 47,621 12,613 April .. .. .. .. .. 62,500 48,404 14,095 May .. .. .. .. .. 63,349 49,599 13,750 June .. .. .. .. .. 64,621 50,076 14,545 July .. .. .. .. .. 64,765 51,390 13,376 August.. .. .. .. .. 66,073 53,401 12,673 September .. .. .. .. 65,994 54,356 11,638 October .. .. .. .. 66,330 54,983 11,347 November .. .. .. .. 66,618 55,847 10,771 December .. .. .. .. 66,713 56,161 10,553 1938. January .. .. .. .. 67,166 57,080 10,087 February .. .. .. .. 65,152 57,763 7,389 March .. .. .. .. .. 65,008 58,065 6,943

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The surplus for the year ended the 31st March, 1938, was several million pounds less than the favourable annual balance required to provide for Government and local bodies' debt service and other expenses overseas, in addition to the estimated amount of invisible items such as net tourist expenditure, commissions, interest, &c. The Dominion has thus been drawing upon its overseas resources during the year to a considerable extent. (Ib) Commodity Prices.—The rising tendency of prices noted last year has continued, as shown in the following table based on indices compiled by the Government Statistician. The slight decrease in the index number of export prices is due to a decline of 33 per cent, in the price of wool, largely offset by increases of 23 per cent, in dairy-produce prices and 9 per cent, in meat-prices. (Base 1909-1913=1000.)

(c) Business and Trade. —The following statistics, compiled by the Government Statistician, give some indication of the trend of business and trade during the year : —

(.d) General Survey. —The foregoing statistics indicate that the year ended March, 1938, was characterized by the maintenance of conditions of economic buoyancy. The increase in export values is due mainly to the higher level of prices for butter and cheese and to the fact that the year's figures include some of the higher values realized by wool during the 1936-37 season, which thus offset, to some extent, the recent fall in wool-prices. Farm production has been well maintained during the year, but there is at present, owing to unfavourable seasonal conditions, a slight falling-off in the production of butterfat. An important element in the economic development of New Zealand has been the fact that the products of expanding pastoral industries have found in Great Britain a secure market unhampered by restrictive trade policies. At the present time, when the channels of international trade are obstructed by the widespread adoption of restrictions on trade and foreign exchange, it is gratifying to note that New Zealand still holds a favourable position in the British market. During the past year 85-8 per cent, of the total exports of New Zealand were shipped to British countries, including 79-5 per cent, to Great Britain. The total value of imports increased considerably during the year, partly due to a rise in prices and partly to increased quantities. These additional imports were accounted for partly by increased consumption, but there was also a considerable building-up of importers' stocks of certain commodities. Notable increases in both value and quantities occurred in the imports of motor-vehicles, iron and steel goods, and machinery. An unusually large import was that of approximately 3,000,000 bushels of wheat, rendered necessary by the reduced yield of local wheat crops.

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Percentage Increase. March MWh~ Highest and Lowest T March, March, ' l0 «, 0 ' Points reached during Tndex - 1937. 1938. 1937 ' 1938 > Year ended over over 91 , M , irk00 March, March, 31st March - 1938 ' 1936. 1937. A. Wholesale — Highest. Lowest. Imported items .. .. 1383 1425 5-33 3-04 1425 1383 Locally produced items .. 1548 1605 6-98 3-68 1685 1548 Combined wholesale index .. 1472 1522 6-2 3-40 1565 1472 B. Export prices .. .. .. 1351 1345 12-21 0-44* 1563 1345 C. Retail prices .. .. .. 1538 1605 7-55 4-36 1620 1550 * Decrease.

Percentage Percentage Year ended Year ended Increase 1937 Increase 1938 31st March, 1937. 31st March, 1938. as compared as compared with 1936. with 1937. (000 omitted.) Exports (excluding specie) .. .. £(N.Z.) 60,235 £(N.Z.) 65,008 21-3 7-9 Imports (excluding specie) .. .. £(N.Z.) 47,621 £(N.Z.) 58,065 27-2 21-9 Sales tax.. .. .. .. £(N.Z.) 3,051 £(N.Z.) 3,519 23-6 15-3 Bank debits (excluding Government) £(N.Z.)874,020 £(N.Z.)957,212 22-6 9-5 Building permits (main towns) .. £(N.Z.) 5,433 £(N.Z.) 8,167 8-9 50-3 Railways — Revenue .. .. .. £(N.Z.) 6,904 £(N.Z.) 7,592 10-6 10-0 Number of passengers .. .. 21,235 22,441 4-3 5-7 Freight tonnage .. .. .. 6,814 7,516 10-1 10-3 Coastal cargo tonnage (inwards) .. 1,902 1,991 17-4 4-7 Number of motor-vehicles (licensed) .. 256 280 12-3 9-4

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Banking figures have naturally reflected the general rise in prices and in business turnover, increases being recorded in note circulation, advances, and bank debits. The percentage of trading-bank advances to deposits has risen from 68 per cent, in March, 1937, to 82 per cent, in March, 1938. Post Office Savings-bank deposits during the year exceeded withdrawals by £3,400,000, and accumulated deposits, including interest, have risen from £58,000,000 to £63,000,000. The maintenance of a high level of business activity has naturally reacted favourably on Government finances, and, in spite of the absence of borrowing overseas, it has been possible to finance an extensive programme of public-works expenditure partly by revenue from taxation, partly by loans from the Post Office Savings-bank and other Government Departments, and, as regards housing, by advances from the Reserve Bank, which, however, have temporarily been repaid out of funds available from other sources. Public-works construction has therefore been an important factor in determining the distribution of capital and labour resources and the nature and volume of employment. With the exception of the Primary Products Marketing Department overdrafts, all advances made by the Bank to the Government were repaid by the end of the financial year. This restraint in the use of Reserve Bank credit for financing public expenditure is regarded by the Board as a wise course to have followed during a year of relatively high export values, especially as there has been a large increase in trading bank advances and a decrease of £(N.Z.)7,800,000 in the combined net overseas assets of the Reserve Bank and the trading banks. Whilst not wishing to comment upon the question of public works generally, the Board regards it as highly desirable, on financial grounds, that the extent of such works should be regulated as far as practicable according to the state of employment in other directions, a slowing-down being arranged when the demand for labour for other purposes is relatively satisfactory and an acceleration during periods of comparative business inactivity ; but it is considered that in neither event should reliance be placed upon the requisite funds being provided by the Reserve Bank when they can reasonably be derived from other sources unless, and to the extent that, any expansion of the currency is indicated at the time. If, however, recourse is to be had to additional expenditure on public works during periods of relative trade depression, the Board would stress the importance of avoiding any undue expansion of credit when the trade position of the Dominion is favourable, for in the ordinary course, unless overseas funds are allowed to accumulate when the proceeds of exports —and, consequently, the national at a high level, it would be difficult to maintain purchasing-power —involving a strain on the overseas position —if and when the Dominion's overseas trade position materially deteriorates. Statistical Summary. The Bank has arranged to publish a monthly bulletin of statistics which will include a collection of information already available from various other sources, but also some financial data not published hitherto. Staff. The Board again has pleasure in recording its appreciation of the manner in which the Staff generally have performed their duties during the past year. For and on behalf of the Board of Directors— L. Lefeaux, Governor. 3rd June, 1938. W. L. Warb, Deputy Governor.

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Profit and Loss Account for Year ended 31st March, 1938. Dr. Gr. General charges, including salaries, rent, £ s. d. Balance of profit after making provision £ s. d. cost of note-issue, and other expenses 90,753 15 9 for rebate on Treasury bills not yet Staff Superannuation and Provident due, and for sundry liabilities and Fund .. .. .. .. 12,500 0 0 contingencies .. .. .. 299,064 19 4 Balance, being profit for year .. 195,811 3 7 £299,064 19 4 £299,064 19 4 Profit and Loss Appropriation Account. Dr. Cr. Payment to New Zealand Government £ s. d. £ s. d. in terms of section 36 of Reserve Bank Balance at Ist April, 1937 .. .. 47,142 13 6 of New Zealand Act, 1933 .. .. 47,142 13 6 Balance from Profit and Loss Account.. 195,811 3 7 Balance .. .. .. .. 195,811 3 7 £242,953 17 1 £242,953 17 1 £ s. d. Balance .. .. .. .. 195,811 3 7 Balance-sheet as at 31st March, 1938. Liabilities. £ s. d. Assets. £ s. d. General Reserve Fund .. .. 1,500,000 0 0 Gold (at face value) .. .. 2,801,791 0 0 Bank-notes .. .. .. 13,553,546 10 0 Sterling exchange .. .. 16,535,053 .16 0 Demand liabilities — Subsidiary coin .. .. .. 227,798 0 7 (a) State .. .. .. 6,138,218 10 7 Advances— (ft) Banks .. .. .. 5,477,773 19 2 (a) To the State or State under(c) Other .. .. .. 271.175 2 5 takings — Other liabilities .. .. .. 96,992 10 3 (1) Primary Products MarketProfit and Loss Appropriation Account 195,811 3 7 ing Department .. 5,200,848 17 5 Investments .. .. .. 2,423,525 0 0 Other assets .. .. .. 44,501 2 0 N.B. —Holdings of sterling have been converted into New Zealand currency at the rate of £100 sterling equals £124 (N.Z.). £27,233,517 16 0 £27,233,517 16 0 L. Lefeaux, Governor. W. L. Ward, Deputy Governor. W. H. Welsh, Chief Accountant. Auditors' Certificate and Report.—We have audited the balance-sheet as at 31st March, 1938, above set forth, and 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, 1938, according to the best of our information and the explanations given to us and as shown by the books of the Bank. D. G. J™TON} Public Accoulltants > Auditors. Wellington, New Zealand, 26th May, 1938.

Approximate Cost of Paper.—Preparation, not given ; printing (840 copies), £14.

By Authority: E. V. Paul, Government Printer, Wellington. —1938.

Price 6d.]

2—B. 16.

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