History of New Zealand Banking — Part 2

As mentioned in last month's article, New Zealand started its existence by issuing currency that was not approved by the British treasury or backed by gold or silver. It was essentially backed by nothing. This month, we will dive deeper and discuss the instability of New Zealand's currency during World War I.

War broke out across Europe in 1914 and Britain led the fight against Germany. As a dominion of Britain, New Zealand sent troops and supplies to aid the war effort. Britain began spending its reserves of gold and silver. The war was prolonged, and Britain soon declared all its currency to be legal tender; removing the requirement for it to be backed by gold or silver during World War I. New Zealand followed suit as its economy was intertwined with England’s.

The war spurred industry in New Zealand, but shortly after World War I the demand for goods fell off. New Zealand’s economy was unstable throughout the 1920s, and the depression of the 1930s was even more detrimental. Up until this time, New Zealand relied on England for coins and chartered banks for its local circulating currency. These attributes led to instability that New Zealand had little hope of influencing.

The instability since World War I proved that New Zealand needed more control over its own economy. In 1933, New Zealand passed the Coinage Act and the Reserve Bank of New Zealand Act. The acts provided the ability for New Zealand to mint its own coins and currency through its own government-controlled bank. The Reserve Bank could better control the economy than its predecessors in turbulent times and didn’t have to rely on external sources for its funding. Shortly after, the local banks were stripped of their note-issuing privileges and much of the public was supportive due to their fraudulent practices during the depression. The acts also transitioned the notes from pounds sterling to New Zealand pounds, making the country more independent.

New Zealand, Reserve Bank, Pick# 157, 1934, £50 PMG Graded 45 Choice Extremely Fine EPQ. Click image to enlarge.

The first series issued by the Reserve Bank of New Zealand was in 1934 and, shortly after, the next series was issued in 1940. The next series would be brought about in 1967, with the country switching to the decimal system for its currency. The change was purely economical. By changing to decimalization, the government felt in the long run it would save the country time and money with conversions.

Since decimalization, New Zealand has, of course, had economic troubles, but it has had greater ability to steer the country in a better economic direction. The persistent influence of the world has had a great effect on New Zealand throughout its history, and this is no exception when it comes to its currency. The rich history and great artwork on the notes of New Zealand are a welcome addition to any collection.

PMG has graded less than 5,750 notes for New Zealand (as of August 2019), and less than a thousand notes are prior to 1933, which makes these quite rare. Check out the PMG Registry and compare your collection.

Sources:

• Post-War Economies (New Zealand)
• War Finance (Great Britain and Ireland)
• Reserve Bank of New Zealand: The History of the Reserve Bank of New Zealand
• Reserve Bank of New Zealand: Bulletin Vol. 66 No. 1
• First World War - Overview