HIGH EXCHANGE RATE.

Auckland Star, Volume LXIII, Issue 28, 3 February 1932, Page 8

HIGH EXCHANGE RATE.

PROF. COPLAND'S ADVOCACY. BENEFITING THE FARMERS. ADVANTAGES V. DISADVANTAGES. The advantages and disadvantages of a high exchange rate were discussed during his visit to Auckland this week, by Professor D. B. Copland, who is one of the leading advocates of a high rate. Professor Copland said in an interview that a high exchange rate, as in the case of Australia and Great Britain, might be associated with falling internal prices. In that event a high rate was to bo looked upon as a safeguard against a catastrophic fall in internal prices, and a means of avoiding costly deflation. In the case of England, by abandoning the gold standard and allowing the exchange rates to rise, the real costs of production in the exporting industries had been reduced, and already some recovery had taken place. In New Zealand, the position was similar. A drastic fall in export prices had left the country with a very serious internal economic situation. To bring costs down to the present level of export prices, even when measured in depreciated New Zealand currency, would require an adjustment of the order of 35 per cent in all costs, such as wages, interests, rents and transport. It would require the writing-down of the value of all securities to an extent that had not been realised by those who believed it necessary to maintain a low exchange rate. In that event there would be great financial embarrassment, because many financial institutions had their liabilities in fixed money claims, which did not fall iu 'money value in a period of deflation. Export Industries' Burden. It was quito true that costs had to bo cut, but care should be taken to distinguish between real costs and money, costs. "Now," said Professor Copland, "tho difficulty of low exchange rate and falling price level is that the adjustment in money costs is not sufficient to offset the low prices, and real costs increase. So far from a low exchange rate bringing about a reduction in real costs, it adds to the burden of costs upon the export industries. "Let me put the position in this way: A high rate of exchange adds to the gross income of the export industries, and this gives them a much better opportunity of sustaining export production, and thus enables tho country to meet all its external obligations. It is true that the high rate, for tho time being, will increase the cost of imports in New Zealand currency, and add to the money cost in New Zealand currency of the oversea interest payments. The question is, whether these costs are greater than the benefits. We must anticipate a slowly falling price level for secondary commodities, so that a higher rate of exchange would not raise the New Zealand price level of imports to the extent of the higher exchange rate. Shifting the Burden. "It is, however, true that imports will bo higher in price than they would be at parity of exchange," added the professor. "and that the rest of the community will have to bear the costs of the higher prices of imports. This is not an objcctiou to the high rati? of exchange, but an advantage, bccause the problem before New Zealand is to lift from the shoulders of the distressed primary producer part of the disproportionate losses from which he is now suffering and place it on the shoulders of those sections of the community that have not yet suffered much loss of real income. A high exchange rate does this automatically and with little disturbance to the rest of the community, compared with the great disturbance that would be associated with the drastic cuts in costs necessary at parity of exchange. "Farmers' costs will not be increased by the amount of tho high exchange rate. These costs consist, in large part, of lixed charges, which will not be affected by the high exchange rate. The maintenance of the internal price level at a point above external prices means that adjustments can be made with much less financial disturbance, that the money value of the national income will be higher, and that the Government revenue will bo higher than it would be at parity of exchange. Despite the increased cost, when measured in New Zealand currency, of interest on the external debt, it will be easier to secure a balanced Budget if the worst evils of deflation can be avoided.

"Unfortunately many people are imI pressed by tho added cost, in New Zealand currency, of external interest payments, but fail to appreciate the fact that the money value of the national income will be kept up, and with it Government [revenue will be kept up. Finally, tlie best advantages from a high exchange rate can he derived if the community has, at the same time, eut its costs by reducing the burden of wages, interest, rents, etc., and also the fixed charges of the producer." FARMERS' EXECUTIVE MEETS. (By Telegraph.—Press Association.) [ WELLINGTON, this day. The exchange rate question was discussed by the Dominion executive of the Fanners' Union this morning, but 110 finality was reached. After a long address in support of the wise for free exchange, the president, Mr. Wm. Poison, M.P., moved that the executive support and endorse the action of the Farmers' Exchange Committee in demanding free exchange, and pledge itself to support anything to that end. Although the meeting was favourable, the motion was not put to a vote, pending an address this afternoon by Mr. A. C'. Davidson, general manager of the Bank of New South Wales.