HIGH EXCHANGE.

Auckland Star, Volume LXV, Issue 170, 20 July 1934, Page 3

HIGH EXCHANGE.

BANK'S STATEMENT. "STICKY PROBLEM UNLOADED" COMMENT BY MB. STEWABT. "I do not interpret the decision of the Reserve Bank as involving any expression of opinion as to the wisdom or otherwise of the high exchange policy. The bank has merely decided to recognise the existing state of affairs," said the Hon. W. Downie Stewart, former Minister of Finance, in commenting in Wellington yesterday on the bank's statement that it will aim at retaining the present exchange rate unchanged. "The fact is that the Government, having vainly waited for IS months in the hope that importers would acquiasc in the artificial depreciation of our money, were only too glad to unload so sticky a problem on to the Reserve Bank," said Mr. Stewart. "It is interesting to contemplate how long we could have gone on in the absence of the Reserve Bank which was not even in existence when the policy was adopted.

"However, the bank having appeared on the scene, two courses were open: — It could decide to fix the rate at a point which would enable importers to do normal business and sell their imports in spite of the sales tax and other burdens. But in that case the Government would have had to bear the loss on selling funds at less than what they had cost them. "The other course was to stabilise the present rate in the belief that if uncertainty is removed the process of adjustment to the rate already under way will be completed in a relatively short time and that importers-and consumers would resign themselves to their fate. That course has been adopted. The implications of this are far-reaching for local bodies and business firms, and, indeed, for the whole community. We have already had to deprive ourselves during the currency of the high exchange of a large volume of imports which we could well afford to buy and which constitute an important element in the wealth and well being of the community. I think when the history of recent events comes to be written and a full survey made, not only of short run effects internally, but of the reactions externally on public opinion in our chief market, that it will appear that New Zealand made an unwise decision. But apparently the view of the Reserve Bank was that, having gone so far, we could not turn back." Trading Banks' Position. So far as can be ascertained (says the "Evening Post") it appears that the trading banks are to be left free to say what rates they are going to have between the buying and the selling rates of the Reserve Bank. The Reserve Bank has attempted to fix the outside limit of rates at which exchange will always be available. In South Africa, where there is a Reserve Bank, there is a "spread" of £1 between the rate of that bank and the rate of the trading banks, and so far as the Reserve Bank is concerned the trading banks there are free to fix their buying and selling rates.

The public in New Zealand will now know that if it cannot obtain better rates than the banks give it can always go to the Reserve Bank for its requirements—subject to the limits of amounts as laid down in the Act. The Reserve Bank is under no obligation, it is understood, to let anybody have all the London funds that may be applied for. The Reserve Bank's guiding principle appears to be that it will not take over from the trading banks ordinary or commercial exchange business which they are normally able to transact. On the other hand if the trading banks are not prepared to do exchange business, the public can always go to the Reserve Bank and demand it. The Reserve Bank will fix what will be the deciding points for dealing with exchange, and the trading banks may deal within those points.

The statement was referred to the chairman of the Associated Banks of New Zealand, Mr. E. P. Yaldwyn, who said the associated banks had not yet considered the matter, but they would be meeting presently to deal with it. and would subsequently make an announcement of the rates of exchange to be adopted by them. If any alteration in the trading banks' rate is made at all it is likely to be very small.