THE ONLOOKER'S CASE.

Auckland Star, Volume LXVI, Issue 230, 28 September 1935, Page 14

THE ONLOOKER'S CASE.

NEW ZEALAND'S EXCHANGE POLICY. The astonishment of Mr. George Patterson, a prominent merchant of Sydney, at the criticism of some of the New Zealand Press ancl business men of our exchange policy, as reported to the New Zealand Press Association, is mutual, as we are also astonished at the apathy of the Australians towards their exchange problems, and the delusion with* which tliey seem to have enveloped this simple but important question. Mr. Patterson fails to see the great difference in the cause that led to the devaluation of the currency of both countries. The Australian pound, on the one hand, was forced from sterling parity in 1931 by the extravagant policy of "borrow and bust" by a succession of Labour Governments, during a crisis in the creation of which Australia piayed no small part. The New Zealand pound, 011 the other hand, was deliberately and unnecessarily devalued to the samo level. New Zealand foolishly believed that there was some mysterious advantage to the Australian producer in devaluing the unit that measured the valuo of iiis product for export, and New Zealand was encouraged to follow Australia from sterling, and where necessary financial pressure was brought to bear this by Australian financial interests. This was done to prevent the New Zealand farmer's having the value of his exports measured by a pound equal to sterling value, while the Australian farmer was forced to accept valuation by a pound 25 per cent below sterling value. The position of the Australian and New Zealand farmers is not analogous. Furthermore, the devaluation of the Australian pound is not so serious to the Australian farmer, who submits 30 per cent to 40 per cent of his total production for export, as it is for the New Zealand farmer, SO per cent of whose production is subject to valuation for exchange by the devalued pound.

Mr. Patterson suggests that if New Zealand went back to sterling parity with Australia at 25 per cent below sterling, Australia would under-sell New Zealand in the British market. Was this the self-sacrificing motive that brought Australian bankers and economists to New Zealand? If so, then we have misjudged them. Or was it to prevent New Zealand's taking full advantage of her British credit position and selling her produce, not only to Britain but to Australians who desired to establish London credit through New Zealand? It is a common error to suggest that New Zealand and Australian exports are paid for in sterling. They arc exchanged for goods and services measured for the purpose of exchange by sterling. The recognition of this fact would impress our farmers with the importance of keeping our pound as close to the value of sterling as possible. If, therefore, New Zealand went to sterling and Australia remained at 25 per cent below, we would find an inflow of goods from Britain, Australia, Germany, France and America, creating credits for these countries in New Zealand, the liquidation of which must create a keen competition for New Zealand's exports as a natural sequence to the high value of our credit, and instead of New Zealand's blindly following Australia into inflation, Australia would be forced to follow New Zealand- back to sterling parity in exchange. J. HISLOP.