EXCHANGE RATE

Press, Volume LXIX, Issue 20957, 11 September 1933, Page 10

EXCHANGE RATE

Emphatic Defence by Mr Coates "BENEFIT APPARENT ALREADY" An emphatic defence of the cur-i rency depreciation which the Government brought, about by increasing the exchange rate on London was made by the "Acting-Prime Minister (the Rt. Hon. J. G. Coates), in the addresses which he delivered on Saturday. F.vents had proved beyond doubt, he .said, the correctness of Ihe Government's judgment when it embarked upon this important step. Mr Coates also replied briefly to the inflationary proposals put forward by the Leader • of the Opposition (Mr H. E. Holland, ■ M.P.), which he described as "fantasti- < cally impossible." After describing the measures which ; the Government had taken to meet a ; continuing crisis, Mr Coates said it . was found at the beginning of the vcar that there still remained a gap between costs and prices which had to be made narrower or bridged in some fashion. "There have been many doubts whether lifting the exchange was the right or Hie wrong thing," said Mr Coates. "I can assure you that without question it. was the only thing we i could do to save our essential primary ( producing industries. The country has benefited front it to the extent of more than £5,000.000. Some persons seem to ' think that, the fanners have put: the money in their pockets. Nothing of the kind has happened. They have paid their debts, or some of them, they have paid wages, and paid for iin- ; provements. I have yet, to meet the a.i.'riculturisl or farmer who has anything to hoard. An additional , £5,000,000 is in circulation in this country.' 1 Meeting: the Cost. lie went on to say that, under the arrangement, made with the banks, the Government took over the surplus exchange in the form of sterling assets, which were always worth their face value. The difficulty was how to get that .sterling to New Zealand, for the moment that was done it cost the Government 25 per cent. "The matter has been controlled and is being controlled," added the ActingPrime "Minister. "The community is concerned with what if is going to cost them ;:!. the end of the financial. vcar That is whore the public comes into it. Sav liie amount, is £3.000,000 tho public- is concerned in how we can liquidate tint. The cost of living has not been increased; that is all, and to that extent the public will be called upon by taxation or by raising a loan to balance it." Interest payments, rent, taxation, and other fixed payments could not have been met if some change in the uionetarv situation had not eventuated, he' declared. It was only after prolonged and careful consideration of the issues involved that tiie Government took the step it did in raising the rate of exchange. Events had proved the correctness of its judgment, for, without the exchange increase, those engaged in primary incJiistfv would have been Hat on their backs. Effect of Depreciation. Mr Coates gave the following illustration of the effect of changing monetary standards, comparing New Zealand currency values with those of sterling and of gold. It had to be lemcmberod. he said, that the price of gold changed from day to day. The export value of New Zealand produce for the seven months ending July 31, ID. - ;:;, instead of being £20,400.009 in New Zealand currency, would have been £21,100,000 in sterling, or £14,000,000 (approximately) in gold. The Government's policy had increased export values. Compared with sterling values, they had been increased in seven months by £5,300,000 because of the exchange depreciation; this has gone to the primary-produc-ing industry, and it had percolated through the whole community. "The following illustration is somewhat nearer home," he went on. "I will show from the Government Statistician's figures (the figures for gold being my own), how the returns to Ino individual farmer have been affected. On butter, the latest available figures show that the return to the producer in New Zealand currency was tf.-fd per lb. In sterling this would be 7d and in gold 4}d. Similarly with lamb ("first quality under .'.■6lb—figures for May of this year), the return to the producer per lb in New Zealand currency was 4yd. In sterling this was 3d; in gold it would be 2d. For the same reason as England went off the gold standard. New Zealand depreciated her currency on the sterling standard. Let us take the case of a dairy farmer whose cream cheque for the month is £4O. In sterling this would be £32; in gold it would be about £2l. In view of present costs, there could be no question which was the preferable standard to be on. Primary production was the economic life-blood of New 2'ealand. and, if this was stagnant, the country could not survive." The Cost of Living'. Discussing the cost of living, Mr Coates quoted the following figures, showing all retail group?: — (Average for 1926-1930—1000.) I Year. Index number. 1929 .. .. ]OO4 1930 .. .. 981 lf>:« .. .. 906 1932 .. .. 806 1933 (Julyi .. 797 This table showed a fall of more than 20 per cent, since 1929—-a sufficient answer to those who said that wage reductions had not been met by progressive reductions in the cost of living. It might be mentioned that the cuts on the majority of incomes range from 14J to 19 per cent. The cost of living figures for July. 1933, were below those for November, 1932, in spite of the depreciation of money by 25 per cent., and in spite of the fact that July was a winter month when one would xpect prices to be higher. This proved definitely that the cost of living had not increased since raising the exchange rate. In fact, the index of retail prices was higher in the month preceding the raising of the exchange than it had been in any month since then. Labour's Plan. "May I briefly mention here the plan that Mr Holland would have you subscribe to?" Mr Coates continued. "His plan is to guarantee prices of primary produce, presumably based on an average including bad years and good years. In justice to Mr Holland I have taken an average of prices over the seven years 1926 to 1932 to arrive at a base for his guaranteed prices. The idea is to pay to farmers the difference between prices as they exist to-day and this guaranteed price. At present, prices are well below the average for the last seven years. With Mr Holland's scheme, the Government would have had to pay out in 1932 the huge sv of £19,345,000. If we take July 1933, average prices, the Government would have to pay out £20,400.000 to give the guaranteed price to farmers. These figures are calculated for butter, cheese, wool, mutton, lamb, beef, and pork. "If Mr Holland would guarantee 1928 prices, the loss to the Government I would be even greater, _ On exports

alone, to make up 1928 prices the Government would have had to pay out £27,200,000. When we realise that the total Government expenditure last year was something more than £22 million we can see that what Mr Holland proposes is fantastically impossible. There are several ways of doing this, all at present impracticable and unsound. They are these—borrowing, taxation, and printing notes."