NEW ZEALAND POLICY.

Press, Volume LXIX, Issue 20772, 4 February 1933, Page 19

NEW ZEALAND POLICY.

EFFECT ON AUSTRALIA. COSTS AND PRICES. (mom oua own correspondent.) SYDNEY, January 20. How docs Australia regard New Zealand's decision to increase the rate of exchange on London? If the truth be told, Australia is not greatly concerned, but most people who give any thought to such matters are surprised that action in that direction was not taken sooner. Those who think this way are not nceessarih- in favour of boosting the exchange, but they fail to see how New Zealand can afford not to fall into lino with Australia. It is argued by many that the boosting of the exchange artificially is a disguised form of inflatlon, and very thinly disguised at that; still it has. helped the Australian producers and has saved the politicians from the stigma that they wore inflationists. It is certain that any proposal to reduce the exchange rate would be so strongly resisted in Australia that any Government lending its aid to such a plan would very quickly bo wiped out of existence. It is felt in Australia, "therefore, that the Now Zealand Government acted with the object of saving its own skin more than anything else. "Based, on the "latest available statistics, those for the year coded Decernbrr'r.l last. Commonwealth cxportors will lose £310,000 per annum through the jump in the New Zealand rate. On the old basis an Australian exporter of goods which brought £IOO in New Zealand received £132 !0s in Australian currency. Under the new rate iIOO credit in New Zealand will bring £9!) 5a in Australian money. On the other hand, exporters of produce from the Dominion will benefit, and they will now be able to compete with Australian producers on a level footing. Experts who have examined the position closely are of the opinion that trade between the two countries will not be greatly affected by the change that has taken place, but* thev will watch witn great interest, the competition on the London market. Professor Copland's View. The Dean of the Faculty of Commerce at the Melbourne. University (Professor D. Copland) said that in considering tho effect on the trade between Australia and New Zealand, it would be erroneous to concentrate on the direct trade. Of Australia's exports less than ;; per cent, went to New Zealand, while Australia's purchases from New Zenland were only U per cent, of the Dominion's total exports. "Insofar as tho higher exchange rate makes it more difficult to purchase Australian goods in New Zealand, this will also apply t<» other countries," he said. "There might at first be some decline of NewZealand imports because of the higher costs, in New Zealand currency. In this event the fall of tho total imports into New Zealand will lie spread over all the countries exporting to that Dominion. The consequent fall in Australian exports to New Zoaland will be slight. While at first some reduction in imports may take place, ultimately there will be an expansion of linjorts up to the amount New Zealand can afford to purchase. Although tho first effects might be disturbing it is not likolv that our exports to Now Zealand will be greatly affected in the long run. "Of course, it will be cheaper for Australia to purchase New Zealand goods, but this will also be true of all other countries. It is because of this that tho rise in the exchange rate may increase New Zealand's competitive powers in ordinary commodities. The most important is butter, and already tho prico of butter has fallen to an exceptionally low level on the British market. If New Zealand uses her higher exchange rate as a basis for a lower quotation in London, Australia will obviously be affected. Since the rise in the exchange rate has been to help the New Zealand farmer, and since most of the butter exported from New Zealand is in the hands of co-operative companies, the highest possible sterling price will be sought. It is not likely, therefore, that the higher exchange rate will cause a lower sterling quotation, but it is probable that New Zealand will bo in a better position to maintain her butter production than she was before the rate went up. To this extent her competitive power with Australia will be improved. New Zealand exports 1,800,000 cwt of cutter each year, as compared with 2,000,000 cwt from Australia. The growth of tho Australian butter export trade has been remarkable in recent years, and it has been a frequent complaint by New Zealand that Australian butter production has expanded too rapidly. The higher exchange rate was held to be responsible for some of the increase in production. World Prices. "The raising of the exchange rate in New Zealand, and the breaking away of South Africa from the gold standard, emphasises again the absolute necessity .for world prices to rise if primary producing countries are to maintain their internal financial structure and meet their obligations. Mere currency depreciation will not bring about the desired result of higher prices throughout the world, although it will tend to raise domestic prices in the countries concerned. It remains for the great monetary centres—London, New York, and Paris—to take the necessary action to raise world prices, and every step m currency depreciation in the outsido world ought to provide increasing pressure upon them to take such action.' Those who have discussed the plight of New Zealand point to the fact that all efforts have failed to bridge the gap between costs and prices. The nigtioi exchange rate is regarded as only one half of the remedy. It will increase prices, certainly, but it will not reduce the cost of production. Will New Zealand, give Australia a lead in this vital problem? New Zealand's next move will be awaited \Vith interest.