APPRECIATION OF N.Z. CURRENCY

Press, Volume LXXXIV, Issue 25580, 23 August 1948, Page 7

APPRECIATION OF N.Z. CURRENCY

“Setback To British Pound”

(N.Z. Press Association—Copyright)

(Rec. 11 p.m.> NEW YORK, Aug. 21. Paul Heffernan, financial writer for the “New York Times.” says that New York financial circles regard New Zealand’s currency revaluation as a setback for the British £. “Economically the drain will bo reflected in the higher cost to Britain of her share of New Zealand's surplus." he says. "Psychologically, the effect may be even more far-reaching. Will Australia, which has an export surplus in the sterling area, follow suit? “Any upward valuation of Dominion £’s against the British £ is bound to compound the sterling area trade problem anew. However effective such a move might be in taking more dollars to New Zealand or to Australia, it would not be to the relief of the British £. but rather to its embarrassment.” British Comment “The amount of benefit which we shall depends entirely upon the import licences available,” said Colonel V. I. Robbins, secretary of the British Union of Manufacturers, commenting in London on the adjustment of New Zealand currency to parity with sterling. “After our experience in the past, I think we had better wait and see how the import licensing side of it develops. I do not mean by that that New Zealand alone has been responsible for the frustrations to which we are at present subjected. We have had to contend with the same sort of thing from most other countries. There is no doubt, however, that the change provides us with an unexpected margin for export, and we can only hope that this will not be offset by further import restrictions.” The London “Economist” expressed surprise at Mr Nash’s decision to return the New Zealand currency to parity with sterling. “New Zealand’s agricultural community has, in past months, pleaded vociferously for higher prices for its exports,” said the “Economist.” “They were given some satisfaction as a result of the recently negotiated food contracts between Britain and New Zealand, which gave them increases of between 15 and 20 per cent, in sterling prices. Now it would seem that the whole of this increase and a little more is to be lost by the appreciation in the New Zealand currency. The decision becomes more difficult to understand in view of next year’s election in the Dominion.

“The new currency move was justified by Mr Nash as an attempt to restore the equilibrium between prices in New Zealand and elsewhere, particularly in the dollar area. It should have the,most powerful effect in shifting the terms of trade, though adjustments in the New Zealand economy to this sudden 25 per cent, appreciation of its currency are likely to be more painful than the somewnat haphazard and incidental manner in which the move was announced would suggest.” The financial editors of all the London daily newspapers devoted most of

their comments yesterday to New Zealand's return to sterling parity which, by common agreement, is regarded as one of the most surprising Commonwealth financial moves in recent years. Most contented themselves with balancing the arguments for and against, and with expressing satisfaction that the change could not affect the present cost of New Zealand exports to the United Kingdom. Reaction in Australia While the appreciation of the £ might be a good thin*. for New Zealand, it would not be economically sound, in the present circumstances, for Australia, said the Australian Prime Minister (Mr Chifley) in Canberra. He did not think the alteration in the currency would make any difference to the contemplated trade expansion between the two countries. Commodities which New Zealand wanted from Australia she was unable to get elsewhere, while Australian imports from New Zealand were available from other sources. However, both countries wanted many goods from each other, rather than from the dollar countries. Mr Chifley was referring principally to the exchange of New Zealand timber and newsprint pulp for Australian machinery, iron, steel, and cement. Mr Chifley added that he had discussions along these lines while in New Zealand in January. Australia exported goods over a much wider field than New Zealand, and the appreciation of the currency to parity with sterling would seriously affect exporters. As a party to the Bretton Woods Agreement, Australia was bound not to vary her current exchange rate by more than 10 per cent, unless approval was first granted by the directors of the fund. New Zealand. not being a party to this agreement, was not similarly bound. The appreciation of the New Zealand £ meant some increase in the Australian price of some imported commodities, but Australia would continue to get the same price in Australian currency for goods exported to New Zealand, added Mr Chifley. The “Sydney Morning Herald” says that many observers in Canberra believe that the Australian Government’s determination at this stage not to follow New Zealand’s lead has, to some extent, a political basis. Observers say that the appreciation of the Australian £ to parity with sterling would mean a 20 per cent, reduction in the gross income of Australian primary producers. In the year before an election the political value of such a move would be doubtful, and Mr Chifley. who is now more than ever conscious of the disadvantages that the Labour Party faces at the 1949 election, would not be wise to increase the burdens that the Labour Party’s candidates would have to carry.