EXCHANGE AND CURRENCY

Auckland Star, Volume LXII, Issue 66, 19 March 1931, Page 23

EXCHANGE AND CURRENCY

CENTRAL BANK PROPOSAL. With the present incidence of exchange between England and New Zealand so adverse for the importer, and conversely somewhat helpful for the farmer, the position is in the aggregate inimical to this country's interests. It may be argued that the farmer's exports are much in excess of his local purchases, and thus he would gain, but the fact remains that the depreciation of the Jsew Zealand pound sterling will create debits that the man on the land will eventually have to pay. Currency is a very delicate question, and any effort tending to improve its flow and movement must come from concerted action of the countries adversely affected. It is well known that a shortage of gold is largely the cause of falling prices, and thus we see the markets for commodities such as butter, wheat, rubber, sugar, tea, coffee, tin, zinc, lead and silver lifeless and depressed. The tonic needed to energise these markets is an increased gold supply. Unfortunately the gold production of the world las been slowly falling for years. In 1911 it reached a total of 22,605,000 ounces. For the year 1930, the production was 19,500,000 ounces—a very considerable drop. Large reserves of gold are held in the United States, France, and the Argentine, and the mobilisation of these hoards would undoubtedly make for lower exchange rates and higher commodity prices. The release of these reserves, however, must, of course be the affair of the countries mentioned. If the present position of shortage of the world's gold supply is going to continue the question is worth considering whether any alternative to gold could bo found, such as the suggested platinum, and on what terms, and in what -• conditions such monetisation could function. The establishment of a central reserve bank for New Zealand is advocated by some, as a remedy called for by the present financial conditions. This bank would be partly owned by the State, and would enjoy the exclusive right of note issue. It would be rendered powerful enough to stabilise rates of overdraft interest payable, and further capable of aggregating and handling all government and public body borrowings. By operating on the London money market at an opportune time favourable loan interest rates would be secured, and the country would benefit thereby. As regards exchange rates, this is, of course, purely a matter of indebtedness between countries, and exchange rates are . determined by value margins. Therefore, other than by securing for our nationals lower rates of interest, a central reserve bank would not add any capital to this country's resources or enhance the value of its exports. It therefore follows that it , would not be able to control any move- I ment of exchange whether in our favour or otherwise. Whether such an institu- i tion would be suitable for a small ' country such as New Zealand, with its 1 1J millions of population, is doubtful, ] M it.is certainly a proposal that merits some" consideration. c . CHAS. L. STEVENSON. t