‘Devaluation Would Be Disastrous’

Press, Volume CII, Issue 30144, 30 May 1963, Page 12

‘Devaluation Would Be Disastrous’

Devaluation of New Zealand’s currency would have disastrous effects. It would mean that New Zealanders were selling cheaply and buying expensively, and that any drive for greater diversification of production and exports would be halted, says the Secretary of Industries and Commerce (Dr. W. B. Sutch) in a background paper to be presented.at the Export Development Conference in Wellington next week.

Devaluation was still occasionally being put forward as a palliative, if not the answer for New Zealand’s unibalanced and immature economy. Dr. Sutcii said. “Currency devaluation would immediately add to the income of the farming community; it would have much stronger effects than a liberal credit policy, for the latter needs business confidence with it.

“By adding to the gross income of tlie farming industry, devaluation would add much more to this industry's net income. Whether this extra net income were spent on services, consumer goods .or in investment, it would still have strong inflationary effects much higher land values, higher paper profits, higher prices generally and higher wages plus a greatly increased cost of manufactured goods. “Devaluation would, of course, increase the cost of imported equipment, motorvehicles. oil, raw materials for industry, consumer goods, goods of all kinds. “It would add no more to production; it would transfer wealth and income from those on fixed or low incomes to those owning fixed assets or with higher incomes. “Devaluation would create a heavy demand for more imports both of finished

goods and materials and components for manufacturing, and would mean much more rigjd and tight import control. for devaluation would add nothing to overseas funds. “In fact, it would reduce them by creating a stronger urge for those who have liquid funds to change them into overseas currency and by making New Zealand's manufactured goods more high-priced because manufacturing costs would rise higher than the extent of file external currency devaluation.

“Devaluation was right 30 years ago when New Zealand’s internal prices had fallen low and it had very substantial unemployed resources of manpower and materials. It would be wrong today when none of these conditions apply,’’ Dr. Sutch says.