EXCHANGE POOL.

Auckland Star, Volume LXIII, Issue 139, 14 June 1932, Page 9

EXCHANGE POOL.

ENDING THIS MONTH. | WHAT EFFECT ON RATE? risk of rise discounted. NO GOVERNMENT INTERFERENCE. In accordance with the undertaking •riven when the exchange credits pool was first formed, that the regulations would be withdrawn when requirements for New Zealand's commitments in London were met, the Government will takeaction at the end of the month to re-1 lease the pool, according to a statement! made in Christ'-hurch by the Prime Min-j. ister, the Rt. Hon. G. W. Forbes. Mr. Forbes intimated that the Government 1 does not intend to interfere with ex- i change rates, and the general opinion of 1 Auckland importers and exporters inter- ' viewed this morning is that the possi- i bility of the banks forcing up the rates ; is extremely remote. "The majority of < the banks," said one prominent business ! man, "are dead against any increase." 3 In the course of his Christclmreh statement, the Prime Minister said the Government had never interfered iu the nvestion of exchange. The present rn'e 1 had been fixed by the banks, and he assumed it would be maintained after ( t.lio withdrawal of the export licenses. It 1 wii,B not the Government's function to * lix exchange, and the banks would con- 1 tinue to bo responsible. Mr. Forbes ; -pointed out that the original Order-in- 1 Council establishing the pool was not for tlie purpose of controlling the exchange ; rate. 1 Position in Hand. "It seems to me that the Government would not be prepared to release the pool at the end of the month unless it . were fairly certain that nothing would, as a result, happen to the exchange rates," commented the head of a large Auckland business house. "The regula- , tions would not be relaxed if the Gov- ■ oniment thought the rate would soar to | 30 per cent, as the general manager of tlie Bank of New South Wales would , like it to. Presumably the Government is satisfied that it lias tlie position in hand, and that, with the releasing of the pool the rate of exchange will net , jump at all." The danger of fluctuating exchange rates was emphasised by this authority, who said that the effect would be most unsettling and would place both buyer and seller in the position of not knowin" from month to month what goods would cost. That was especially . the ,-ase with regard to heavy lines, such as iron and wire. In addition it would lead to unfair competition and would detrimentally affect business generally. Adherence to io Per Cent. Discussing the possibility of one of the Associated Banks breaking away and announcing buying and selling rates considerably in advance of the present rates ranging around 10 per cent, he quickly discounted the suggestion that the other banks would follow suit. The banks adhering to the present rates •voil Id not lose their clients, -Evdry firm must stand by its own bunk. Of course, if, the position got out of hand, the Government would have to icislate against it. We could not have one bank offering 30 per cent aild capturing all the butter business, and the other banks offering other rates iiie exporters would go to the bank offering the highest rates, and tlie importers would go to the other banks, and tao funds would have to be transferred from the one bank to the other. No, I don t think such a state of affairs could continue for long. However, lam sorry to learn that the pool is to be abandoned, since we could buy and sell with confidence under the fixed rates. Monkeyin with the exchange at any time is a bad thing." Rcret that the Government intended to release the pool at present was expressed by another business man whose firm carries on an extensive importing business. In his opinion an action ot that nature, or anything that might tend to interfere with rates of exchange, within a few weeks of the Ottawa Conference, was a grave error of tactics. Although the abandonment of the pool did not necessarily mean an increase in exchange rates, what concerned importers and business houses was the danger of an increase and the feeling of uncertainty that was engendered. "I wish I knew what was going to happen to the exchange rates after the pool is released," he added. " No Necessity for Increase." A leadin"- city merchant pointed out that importers could take some heart from the fairly clear indications given that the majority of tlio hanks were dead against an increase in the exchange rates. It was quite clear that with the balancing of purchases by exports and the provision made for oversea debt service, there was little or no necessity for an increase in the exchange rates. If tha exchange were freed and Australia used New Zealand funds, there would not be sufficient funds available to prevent an increase, which would be made automatically to prevent the transfer of New Zealand funds to Australia. If, however, New Zealand moneys were applied only to New Zealand requirements there would be no need for any increased exchange. "No Great Change." "It is quite correct, as stated by the Prime Minister, that the Government never fixed the rate of exchange," said Mr. A. A. Ross, president of the Auckland Farmers' Union. "The export regulations were not framed with that object, but all the same the effect was to give the banks full control, and they fixed the rate. I have always thought it doubtful whether free exchange would have made much diflerence, and I do not anticipate any great change when the regulations cease to operate. The banks control the great bulk of the exchange, which will ensure that the bank rate will never vary greatly from the natural rate. Under free conditions, if the market value of New Zealand credit in London did vary greatly, a considerable volume of exchange would he done outside the hanks, which would cause the rate to be altered, just as it did in Australia. Under free exchange there could hardly ever be any great fluctuations, which some people fear, because the -banks controlled such a large proportion. There could never be for any great length of time a serious disparity between tha bank rate and the natural rate."