POST-WAR TASKS

Auckland Star, Volume LXXIV, Issue 38, 15 February 1943, Page 2

POST-WAR TASKS

RELAXING CONTROLS

FINANCIAL ADJUSTMENTS

An essential, though seldom discussed part of New Zealand's problem is that of money and exchange, which is closely linked both with import control and with control of the post-war boom, states the Canterbury Chamber of Commerce in a bulletin dealing with post-war reconstruction. • After the present war, the numbers of men to be reabsorbed in civilian life will probably be greater than in 1918, and the industrial changeover will also be bigger. The Government cannot possibly handle all this, declares the Chamber. In fact, the less the Government has to manage the more effectively it should be able to do its share, and it will probably be fully occupied with other matters which it alone can do. To reduce its own share to manageable proportions, the Government will have to give up many of its present controls and restore to industry and trade the measure of freedom necessary for them to manage their own affairs. The extent of controls and regimentation which is unavoidable in war time will not permit the adjustments that are required when peace is restored. Much greater freedom of enterprise, production, trade, marketing, and transport will be needed if the people of the Dominion are to undertake, as they must, their share of the common task.

Adjusting Exchange Exchange and import control are probably inevitable m war time, but in New Zealand they were due in the first place to causes, other than war, which have not yet been removed, continues the Chamber. When the Government borrowed from the Reserve Bank, it created and distributed additional money which was not backed by any corresponding production of saleable goods. Much of this money was therefore spent on imports, payment for which reduced the bank's sterling funds. When these funds approached exhaustion, the process had to be stopped, and exchange control was imposed. In effect, Government borrowing from the Reserve Bank had increased the bank's fixed assets, held in the form of Government securities, and had decreased its liquid assets, held in the form of sterling funds. Under exchange control further increases in Government advances were not free to leave New Zealand. They stayed in the country and swelled the bank's demand liabilities in the form of deposits and notes. As a result, the bank's liability for probable claims by the public has been for some years in excess of what could be met from its liquid assets, and to restore freedom of exchange would expose the bank to a demand for London funds greater than it could meet.

This situation could be remedied either by an increase in London funds, unaccompanied by any corresponding increase in demand liabilities, or by a decrease in its demand liabilities, unaccompanied by a corresponding decrease in its London funds. But a substantial adjustment, which will increase its sterling funds relative to its demand liabilities, is essential before the present exchange control can be removed. Repay Bank Advances The quickest and most direct way to make this adjustment would be for the Government to borrow from the public in New Zealand, not from the banks—probably £15,000,000, would be enough—and use the funds so raised to repay advances from the Reserve Bank. This would decrease the bank's demand liabilities, and decrease its advances to the Government, without affecting its London funds, and the bank would then have sufficient sterling exchange to meet all calls likely to be made on it. It would then be in a position to restore free exchange dealings, and import control would no longer be necessary to protect its exchange funds. A similar result might be achieved if the Government were to borrow some or all the money abroad and use it, when transferred to New Zealand, to repay advances from the bank. This method would increase the bank's holdings of sterling exchange without increasing its demand liabilities. The former of these two methods is to be preferred, since it would provide the best means of controlling the expected post-war boom.