The Press FRIDAY, JUNE 22, 1934. The Cost of High Exchange

Press, Volume LXX, Issue 21197, 22 June 1934, Page 10

The Press FRIDAY, JUNE 22, 1934. The Cost of High Exchange

We printed yesterday a statement by the New Zealand Importers' Federation, in which it was estimated that for the first 12 months of its operation the higher exchange rate had involved the country in a direct cost of £7,440,000 and an indirect cost of £7,130,000. In his reply, Mr Coa.tes has no difficulty in showing that the calculations on which these estimates are based contain some elementary mistakes; as, for instance, when the federation adds to the cost of the transaction the amount of taxation raised to meet that cost. He might also have pointed out that the item " 25 per cent, premium on surplus "funds taken over from the banks "—£5,023,000 " is absurdly arbitrary. The federation assumes that the • Government or the Central Reserve Bank will have to dispose of the £ 20,000,000 worth of funds now held in London at the par rate of exchange. What justification is there for that assumption? The exchange rate was at 110 before it was raised to 125. Does the federation argue that a rate of 110 is too high? In any case estimates of the cost of the high exchange such as those given by the federation are inevitably misleading, since they present only one side of the picture. The benefits of the high exchange to the farming industry and to the community as a whole cannot be precisely assessed, but it is quite certain that if the exchange had not been raised the Government would have had to pay out millions of pounds in direct subsidies on primary exports. The federation calls the Government's exchange policy a " dangerous experiment with the " Dominion's financial stability." The answer to that is in the public accounts for the financial year 1933-34, which show that the Dominion's financial position ;s better than it has been at any time since 1929. For that the restoration of agriculture, partly through a reduction of costs and partly through the raising of the exchange, is largely responsible. "