it was hoped), the Reserve Bank would be the only bank of issue
in the Union. However, the other banks' issues, even in the transitory
periods, will require to be backed by a minimum gold reserve
of 40%, and for any excess circulation over that of Dec. 31 1919,
they will pay an additional tax of 3% per annum.
The South African Reserve Bank itself will be obliged to maintain a minimum gold reserve of 40% against its note issue, but the remaining 60% may be covered by commercial bills, and by a fixed charge on all the assets of the bank. Further, it must keep a minimum gold reserve of 40% against its deposits and bills payable.
The bank will act as the Government's bankers and financial agents, and will fix discount rates. It is empowered to set up branches in any part of the South African Union, and, subject to the consent of the Treasury, may also open branches outside the Union.
The business in which the bank may participate does not differ materially from that done by other banks within the South African Union, with this exception, that it will not be allowed to receive time deposits, nor to draw or to accept bills payable otherwise than on demand. The usance of bills of exchange or promissory notes in which it will deal is limited to 90 days, except bills or notes arising out of agricultural finance, for which the usance is limited to six months. However, all bills must bear at least two good signatures. Dealings in these six-months' bills are limited to 20% of the bank's total advances, so there is not much risk of such finance embarrassing the bank.
The principles of the other business allowed to be undertaken by the bank closely resemble those peculiar to the Bank of England, and most of the regulations governing it are designed with a view to giving the country the greatest possible financial assistance in times of crisis or of stress.
As this was the first central bank established in the British Dominions, its progress will be watched with keen interest both at home and abroad, and as Sir Henry Strakosch has said, “In the light of the experience gained by the central banks of Europe, the South African Act should be capable, under wise management, of adequately fulfilling the functions for which it was set up.”
Another new development of importance in colonial banking since 1910 has been seen in the establishment in Australia in 1912 of the Commonwealth Bank. For the purpose of starting this bank a special Act of the Federal Parliament was necessary; it is called the Commonwealth Bank Act of 1911-4. The bank commenced business early in 1913, and by 1921 had safely survived the criticism to which, as a State bank, it was subjected. It has become one of the recognized financial institutions of the Commonwealth, and it has not only been a steadying influence to the Australian financial and banking position, but has given added stability to the banks in the Commonwealth, and has certainly strengthened the Commonwealth's position. It was, of course, the first State bank in the British Empire, and it is owned entirely by the Australian Commonwealth Government. The bank has no share capital and all its obligations are guaranteed by the Government. There is no board of directors, and the bank is considered to be free from political interference. Of necessity, however, the bank must be closely in touch with the Government. It is responsible for practically all the Government's business; it conducts the Government's savings banks at all its branches, and is largely responsible for 2,800 agencies at the Australian post-offices. It also undertakes the flotation of the Australian loans in London, and manages the Government stocks much in the same way as the Bank of England attends to Government issues. It is also responsible for the gold which is produced in Australia, and for the federal note circulation. The net profits of the bank are utilized in the building up of reserves; one-half of the profit is placed to the credit of a fund called the Bank Reserve Fund, and the other half to the credit of a reserve called the Redemption Fund. Each of these reserves stood in 1921 at £1,378,052. The Bank Reserve Fund is available for the liabilities of the bank, while the Redemption Fund may be utilized for repayment of any money advanced to the Australian Treasury or in the redemption of stock issued by the bank, but there is a proviso to the effect that if the fund exceed the amount of debentures or stock in existence, the excess may be used for the purpose of the redemption of any Commonwealth or State debts taken over by the Commonwealth.
During the eight years in which the bank had been in existence up to 1921 it had accumulated profits of £2,756,104; it started with the head office in Australia and one branch in London; it had in 1921 six offices in Australia, two in London, and over 30 branches and sub-branches in all the provinces of Australia, Tasmania and New Britain. Its deposits exceeded £41,000,000, added to which the savings-bank deposits amounted to £17,982,000. Its total liabilities to the public on June 30 1920, were £60,658,600, against which assets were held in the following approximate proportions: cash, 10%; Australian notes, 3%; investments, 31%; bills discounted and advances, 24%.
Although the bank may be said to have justified its existence, the fact that the Australian Government, besides being the proprietor of the Commonwealth Bank, is largely interested in trade matters in Australia, is considered to militate against the best principles of central banking, and it seems likely that the Australians will watch the South African Reserve Bank and will possibly endeavour to develop their own system on rather different lines. The South African Bank, it is held, indicates a very hopeful road towards reform, and the system is certain to receive serious consideration from Australia and most other parts of the Empire. Critics have laid stress upon the advantages which the South African Reserve Bank will secure for the internal finance of the Union, and that really is what is wanted in Australia. The establishment of the South African Reserve Bank opens the door to imperial coöperation in banking and currency matters in a form and on a scale which had been difficult, if not impossible, up to 1921. From the imperial point of view the establishment of such a bank is an event of as much importance as from the international standpoint was the establishment of the United States Federal Reserve system, and it is to be hoped that further developments of the same nature will follow and so enable the British Empire to escape from the charge that coöperation between London and South Africa, London and Sydney, or between London and Montreal, presents greater difficulties than cooperation between London and New York.
Concerning the other banks in the Empire in which Great Britain is interested, we must be brief. To take the Canadian system first: it has certainly all the elements of elasticity, and the years that had elapsed between 1906 and 1921 proved its soundness. There were 18 chartered banks in 1921 with over 4,000 branches throughout the Dominion and Newfoundland. The banking and credit system, like that of the United Kingdom, is thus under the supervision of large banks with tried heads, and just as the “big five” in England are able to keep in close touch through their wonderful branch system with commerce in every part of the United Kingdom, so in Canada the chartered banks very efficiently collate the information needed concerning credit, commerce and industry. As has been well said by a Canadian writer, the “credit facilities of the Canadian Dominion, like the Bank Note issues, follow where the need exists and the situation is always under control. It is the case of a few men working together against many individuals working alone.” The total assets of the chartered banks in 1921 exceeded $3,091,500,000; their gold reserve stood at approximately $80,900,000; deposits at $2,319,600,000; notes in circulation $280,700,000; deposits to secure the notes $106,200,000; investment securities $37,100,000; capital $122,300,000, and rest $128,700,000.
An interesting recent development in Canadian banking has been the establishment of branches or the forming of alliances in and with outside countries. With a view to giving the Canadian exporters every assistance, connexions have been sought in every place in the British Empire that promises a profitable field for Canadian products. The experience of Canadian bankers is, that instead of foreign branches cutting into the banks' capital and drawing funds away from local use, such branches have been instrumental in drawing in more deposits than have been given out in commercial loans. For instance, in 1920 it was found that loans, other than call loans, made outside Canada amounted to some $l83,600,000, while deposits from the general public outside Canada amounted to $318,200,000. The South African banks seem to be finding out the same thing, for they have been extending their branches and banks in many outside colonies, dependencies and foreign countries.
The colonial banks with Eastern connexions, too, are developing the branch system in the colonies and foreign countries on a large scale. The Hongkong Shanghai Banking Corporation, the Chartered Bank of India, the Mercantile Bank of India and the National Bank of India, had in 1921 all been extending their sphere of influence in British Indian and Far Eastern markets, and nearly all of them were increasing their resources to meet the increased requirements. For instance, the Indian and Eastern banks established in London in 1920 (all British institutions) were possessed of capital and reserves amounting to £21,180,600. Their deposits totalled £204,894,000, and cash to £52,754,000, while their total assets amounted to over £200,000,000. Excluding the Imperial Bank of India, five of these Indian and Eastern banks had London offices in 1921, and the five had a total branch strength of over 130.
As showing how they compare with the other colonial banks in London, we conclude with the following details:—
Of African banks there are seven with 873 colonial branches; total capital and reserves £17,046,000; deposits of £189,892,000, and total assets, £249,256,000.
There are 16 Australian banks with 2,393 branches; total capital and reserves £51,248,000; deposits £281,477,000, and total assets of £383,470,000.
Of Canadian banks there are eight with 2,653 branches, £36,524,000 capital and reserves; £386,047,000 deposits, and total assets £487,330,000, all of which leads one to the reflection that however
