The Auckland Star WITH WHICH ARE INCORPORATED The Evening News, Morning News, The Echo and The Sun. TUESDAY, OCTOBER 8, 1935. DOMINION'S EXCHANGE LEVEL.

Auckland Star, Volume LXVI, Issue 238, 8 October 1935, Page 6

The Auckland Star WITH WHICH ARE INCORPORATED The Evening News, Morning News, The Echo and The Sun.

TUESDAY, OCTOBER 8, 1935. DOMINION'S EXCHANGE LEVEL.

For the cause that lacks assistance, For the wrong that needs resistance, Fur the future in the distance, And the good that ice can do.

In tlieir references to the exchange rate the Government's political rivals make no mention of one important feature oC the

situation —the contingent liability for any loss on the sterling assets handed over to the Reserve Bank when it began business. It was made clear that the risk of loss (if any) arising from variations in the rate of exchange on the sterling funds transferred would be borne by the Government. Since then the total, as given in the Reserve Bank's weekly return, has fallen by several millions, but is still close to £20,000,000. And against this fall must be set the increase in the London assets of the trading banks which is sun inarised in the table below: — Aug., 1034. Aug., 193 d. £ £ Reserve Bank 24,487,400 20.513.091 Trading Hanks 11,171,987 17,173,501 Totals £35,001,387 £37,987,192 The increase of over £ 2,000,000 in the total is the result of a diversity of influences. In a comparison over twelve months it may well be interpreted as evidence of steadiness and normality, but it must be remembered that export prices were abnormally low for the greater part of the period and that the import trade was gradually improving. The rise now occurring in export prices will swell the flow into the funds at the London end, and, even allowing for a continued growth in imports, some further accumulation is to be expected in the months ahead.

To what point can this accumulation be allowed to go 1 That is an unanswered question. Seasonal variations in our trade have a bearing upon the position, but the seasonal increase in funds normally occurs after Christmas. The months of largest payments for exports are as a rule in the summer and autumn, and it is possible that the accumulation will not be very marked until the early part of next year. This would mean that any downward pressure on the exchange rate would not be immediately felt. It is one of the duties of the Reserve Bank to keep a lookout for signs of such pressure, and the statement of the governor at the last annual meeting may bo recalled, that there was not yet "any clear indication of an early change in conditions such as would justify our upsetting the degree of stability in exchange rate which has been attained, and in the absence of any such change it will be the aim of the Reserve Bank to maintain its rates on London at the existing levels."

That was four months ago. At the moment the disposition among bankers and in the community generally is to view the market improvement cautiously. An attitude of caution is particularly necessary in considering any change which would affect the currency. To reduce the exchange rate is by no means as simple and easy a matter as was the increase. "It is easy to get up the tree," said Mr. Downie Stewart recently, "but it is much more difficult to get down." After nearly three years the country has not only adapted itself largely to the higher rate, but business commitments have been entered into, orders placed and stocks bought on the present basis. Business is expanding with the recovery of confidence, and those who counsel any drastic reversal of policy at this stage must be told that the country's welfare is more dear to the hearts of the great majority of the people than the political fortunes of any party. And the guardian of the country's interests, in an exchange sense, is not now the Government; it is the Reserve Bank. Protected by the Government's guarantee against loss on the funds originally taken over, it is free to consider the future of the rate without harassing or embarrassing obligations. It is, of course, essential that the Reserve Bank should exercise unfettered power and discretion in its control of the rate, and that its independence should be maintained inviolate. Those who. challenge this view should be asked to state definitely whether they propose some amendment of the Reserve Bank Act.