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Free banking in New Zealand

Since the revival of interest in the history of free banking begun by Hugh Rockoff's work in the 1970s on American "free banking" of the early 19th century and Larry White's 1984 book on the far freer Scottish system of the same period, economists have studied a number of other free banking episodes in some depth. New Zealand has not been among them, though it has received passing attention. We are fortunate, then, that Harry D. Bedford's 1916 dissertation "The History and Practice of Banking in New Zealand" is now available online. Until this year only paper copies were available at the University of Otago, where it was submitted for the doctorate, and a few other libraries in New Zealand. The university has digitized the dissertation and readers around the world can now find it here.

Harry Bedford was a lawyer, social scientist, and sometime member of the New Zealand Parliament whose life was cut short when he drowned in 1918 at age 40. This brief biographical sketch makes it apparent that he had abundant physical and intellectual energy that would have led to even more notable things had he lived.

(Thanks to Michael Reddell for the pointer.)

  • New Zealand is unique (far as I know) in having no taxpayer funded guaranteed for bank depositors: much to the annoyance of the IMF, but quite right in my view

  • mh19870410

    I wondered whether there is a problem with the title of the article. I don't have the time to read the 550~ pages of the (2-volumes) document but here's what the author said, pages 6-7.

    It thus appears that when New Zealand was colonised the generally accepted theory of banking in England was that of strict regulation of the issue of bank-notes upon the Currency Principle; and of freedom from State control of the other functions of banks. This English theory was adopted without question by the Government and bankers of New Zealand. As a consequence, New Zealand has never been subjected to an over-issue of Bank-notes, and no problems have arisen out of the circulation of the paper-money of banks. What calamities have overtaken banking in this Dominion have sprung from that sphere of banking which has been left free from effective external control. The banks of New Zealand have been guilty of prodigal excess of issue of bank-money but it has been in the form, not of bank-notes, but of book-credit operated on by cheque. It has been, of course, convertible credit, but generally not like notes convertible on demand. This convertibility has not prevented excessive issues leading to calamity.

    The English principles of coinage in 1840 were the same as now. There was free and unlimited coinage of gold alone; silver and copper were token coins. Gold was the only legal tender for the discharge of debts upwards of £2; silver was legal tender up to 40/s and copper up to 12d. The English law with respect to coinage and legal tender was in force in New Zealand from the beginning.

    And on page 180, you have something weird…

    The obligation imposed upon banks to stand always prepared for the immediate liquidation of extensive liabilities prescribes strict limits to the nature of the business they can safely embark upon. An investment which might be perfectly sound to a loan company might be fraught with danger to a bank. The former can invest its funds for long periods of years having the full assurance that the money it invests will not be required during the period. A loan company is secure so long as its assets actually equal its liabilities; a bank may be in this condition and yet break by reason of inability to furnish immediate payment in cash of its debts.

    Sure, it does not sound as if it's really a free banking. At least this is what he says. But sometimes people can argue something (slightly) different from what their own data says (due to ideology) and I saw that in some cases in free banking episodes as well (e.g., Sweden or Australia). I would like to see someone study the New Zealand banking ("free" or not) thoroughly.

    P.S. (the document itself is difficult to read, the copy and typing dirty, with impossibility to make good copy paste and all)