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the Reserve Bank of New Zealand Act, 1933, increased during the year by approximately £2,418,000, the total at the end of the year being about £8,000,000 (New Zealand currency) higher than the lowest point touched during the year. (c) Investments decreased on balance by £268,653. The variations in the other items of the balance-sheet were unimportant. Shareholders. During the year the number of share holdings decreased from 6,300 to 5,699, and the average holding rose in consequence from £79 7s. 3d. to £87 14s. Bd. (nominal value). Legislation. The following two Acts which in part affect the Reserve Bank were added to the statute-book : — (i) Banking Amendment Act, 1935 ; and (ii) Finance Act (No. 2), 1935. The first-mentioned Act consists almost entirely of consequential amendments, of no particular importance, to earlier banking legislation following upon the establishment of the Reserve Bank. In addition, the nature of the offence of defacing bank-notes without authority lias been widened. The principal clause in the other Act which affects the Reserve Bank is one which fixes on the bank the liability for payment of all charges made by any other bank for performing any agency services in connection with the Government's banking accounts. As this report deals only with the financial year ended the 31st March last, no reference is made to changes brought about by the Reserve Bank of New Zealand Amendment Act, 1936, which was passed after that date. Bank-notes. No change was made in the design or in the denominations of the bank's notes during the year. As far as can be ascertained, the needs of the public in the latter respect are adequately met by the existing notes, and therefore it is not proposed to incur the expense of adding to the number of denominations of the original issue unless and until there is evidence of a reasonably widespread demand for notes of any other denominations. The question of a change of design for notes of a more permanent nature has engaged the attention of the Board ; but it is not proposed to take any definite action in that respect for the present. Silver Coin. The bank has now assumed the responsibility for the management of the silver coinage in the Dominion. Exchange Rate. The rates quoted by the bank, in accordance with the provisions of section 16 of the Reserve Bank of New Zealand Act, 1933, for the payment of notes in sterling, and for the issue of notes in exchange for gold or sterling, remained unchanged at the levels fixed in July, 1934, when the bank was about to commence business. The rates are : £125 and £124 New Zealand currency, respectively, equals £100 sterling. There were no changes in the basic rates of exchange quoted by any other of the countries in the " sterling " group during the year. In this connection it is of interest to note a statement reported to have been made at the recent annual meeting of the Bank for International Settlements to the effect that an area covering more than 85 per cent, of the world's trade enjoyed for a full year the benefit of practically stable exchange rates. Discount Rate. Under section 13, subsection (2), of the Act establishing the Reserve Bank the bank is required at all times to make public the minimum rate at which it is prepared to discount or rediscount bills. The qualifications of bills eligible for discount were defined by subsection (1) of that section as amended by section 6 of the Finance Act, 1934. The original rate quoted by the Reserve Bank when it commenced business was 4 per cent., which was 1 per cent, below the best rate then being charged by the trading banks for overdrafts. The Reserve Bank's rate was reduced to 3| per cent, in July, 1935, and further to 2| per cent, in March, 1936 ; and it is now as low as that of any other central bank in the " sterling " group of countries with the exception of the Bank of England, whose rate at present is 2 per cent. On the occasion of each reduction of the rate, attention was drawn to the difference between the nature of that rate and the overdraft rate of the trading banks. The principal distinction lies in the fact that the discount rate applies only to bills of exchange, which are for fixed amounts and are repayable on a definite date, whereas an overdraft can either be added to within prescribed limits or reduced in whole or in part at any time during its currency. Moreover, a bill of exchange is a document which is negotiable, whilst an overdraft cannot be so dealt with. The question of the use of bills of exchange requires to be viewed from various angles. Whilst the convenient operation of the banking system is an important factor, the interests of the various parties to the bills must not be overlooked. Another consideration is the suitability or otherwise of bills as a means of financing various transactions. And, further, the circumstances of various countries differ very considerably, so that a procedure which may be admirably suited to the conditions obtaining in some centres may not be capable of satisfactory adaptation in others. The history of bills of exchange has not been completely unchequered in some countries. That they have provided an eminently satisfactory medium for financing certain types of transaction is beyond doubt; but, unfortunately, the use of bills has not always been restricted to such transactions and, in consequence, there is a tendency in some quarters to look askance at them. If a bill market is to be developed along sound lines it is therefore imperative to scrutinize carefully the purposes for

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