The Press THURSDAY, MARCH 14, 1935. Importers and the Exchange

Press, Volume LXXI, Issue 21422, 14 March 1935, Page 12

The Press THURSDAY, MARCH 14, 1935. Importers and the Exchange

It would be interesting to know just what was in the mind of Mr H. G. Thomson when he told the members of the Auckland Importers' Association that they must not be lulled into a sense of false security over the exchange situation and that they should build up reserves against an inevitable " adjustment " of the rate. Such advice is likely to have a seriously unsettling effect on the business community; and for that reason alone Mr Thomson ought to explain himself more fully. The inference most people will draw from his remarks is that he regards the present rate as in some way " artificial" and anticipates that sooner or later it will be necessary to revert to parity with sterling. If that is indeed Mr Thomson's view he has completely misunderstood the monetary situation in New Zealand and the significance of the Government's action in raising the exchange rate to 125 on sterling. In the first place Mr Thomson does not seem to realise that the pound sterling and the New Zealand pound are two different currencies and that parity between them is no more natural or desirable than parity between the United States dollar and the Canadian dollar or between the French franc and the Swiss franc. In fact, there is evidence that for many years the New Zealand pound was kept at or near parity with sterling not because the trading relations between the two countries justified such a rate but because parity was convenient and had a certain sentimental value. In the second place, it is quite wrong to imagine that the maintenance of the rate at 125 is, in purpose and in effect, nothing more than a way of paying a bonus to exporters. Since the establishment of the Reserve Bank and the formal abandonment of the gold standard, the higher rate has constituted a dilution of the currency comparable to that which occurred in Great Britain in 1931 and in the United States last year. It involves, therefore, not merely an increased return to exporters but a general easing of the burden of internal debts, both State and private. In the third place, there is no reason to suppose that any future adjustment of the exchange rate will be downward. The New Zealand rate on £' rl: ~ is not likely "■ fall below the Australian rate; and at the moment there is not the slightest possibility that the Australian rate will be reduced. Finally, MiThomson is very much mistaken in his assumption that the present rate c' exchange is virtually a tariff against British goods. Currenvy inflation exercises a protective effect only during the period in which inflation is taking place. When the inflationary process has had its full effect, and this stage must be very near in New Zealand, domestic industries find themselves competing with overseas industries on the same basis of relative costs as before. The truth is that the raising of the exchange, by stimulating purchasing power, has been of immense benefit to importers. Moreover, the reduction of the exchange rate for which some importers are agitating would do immense damage to their interests.