N.Z. PARITY WITH STERLING

Press, Volume LXXXV, Issue 25913, 20 September 1949, Page 6

N.Z. PARITY WITH STERLING

Announcement By Mr Nash EFFECTS OF NEW DOLLAR RATE DISCUSSED (New Zealand Press Association.) WELLINGTON. September 19. New Zealand would remain at parity with sterling, which meant that New Zealajid currency would be devalued in terms of United States dollars to the same extent as sterling, said the Minister of Finance (Mr Nash) this morning. His announcement followed the broadcast by Sir Stafford Cripps, Chancellor of the Exchequer. Mr Nash said that as New Zealand had already restored its currency to parity with sterling, there was no reason to use the present realignment of sterling with the dollar as the occasion to make any further alteration. As from to-morrow the New Zealand £ would be worth two dollars 80 cents. Devaluation also meant that the price the Reserve Bank would pay for gold would be correspondingly increased, said Mr Nash.

It might be that the overall effect ef devaluation on the internal economy of New Zealand would not be as great as would be expected and that f he effect on the New Zealand price level and cost of living w'ould not be great, continued Mr Nash. Imports from the United States and 'rom other countries which did not follow sterling devaluation would be dearer in terms of New Zealand currency. but on the other hand New Zealand exports to those countries would produce more in terms of New Zealand currency. As the great bulk of New Zealand trade was with the sterling area these effects would be absorbed without appreciably affecting New Zealand’s economy. “Britain has taken the important step of devaluation because, taking fvery circumstance into account, it will strengthen her economy to do so and help her expand her exports to dollar and other hard currency countries.” said Mr Nash. “To the extent that the United Kingdom benefits from this. New Zealand with other countries of the British Commonwealth and the sterling area will stand to benefit, too. Oversea Transactions Mr Nash said it was not necessary to declare a bank holidav in New Zealand, as was done in the United Kingdom to enable the complicated mechanism of the exchange structure to be adapted to the new rate, but to give an opportunity for various technical adjustments to be made. Mr Nash said, he was asking banks to refrain from dealing with any oversea transactions to-day without in each case the specific authority of the Reserve Bank. “It is possible that two or three days may pass before normal exchange transactions can be resumed with some countries, because transactions cannot be effectively carried out until the country in question says how much of its currency is worth in

Nash. “The decision made by the Government of the United Kingdom means that instead of the £ sterling being worth approximately four dollars it will be valued at two dollars 80 cents. The result is that British goods sold in the United States for four dollars will return the Britisn exporter not £1 as formerly, but approximately 28s 6d. Thus the competitive position of British goods wi’i be improved to such an extent that a substantia’ increase ITT'British export? to the United States and Cana3s"" can be expected. Effect on Black Market “The decision is final and definite, eo that traders will no longer be holding back to see what is going to happen. As the margin between the official and the free rates for sterling will be greatly narrowed, if rot eliminated, there will not be the same inducement for distorting normal trade through black-market operations. This should mean a substantial gain in dollars to the sterling area pool. “In every way the effects will be in -the direction of increasing dollar earnings and therefore be a substantial step toward solution of the dollar problem. “As nearly all our exports go to the United Kingdom and a large proportion of our imports are obtained from Britain, it is undoubtedly in the best interests of New Zealand to make no alteration in our existing rates with sterling. “It must be remembered that if decisive action had not been taken things would have probably have gone from bad to worse, dollar trade would have become chaotic, and the United Kingdom might have been forced into deflation and a lower price level, which might have involved unemployment and hard times for her people That would have made it difficult for us to maintain prices for our exports. although we have price protective clauses for two of our major products. “Not a Cure-all" "It should be emphasised that devaluation of sterling i? not a cureall. The complete solution can com? only from building up production in the sterling area and balancing its trade with the dollar area. The action taken, however, should bring an improvement and provide a contribution to an ultimate solution.” Mr Nash said he would make a more detailed statement in the House of Representatives to-morrow afternoon.