Additional Currency Restrictions

Press, Volume CIII, Issue 30575, 19 October 1964, Page 12

Additional Currency Restrictions

Since 1932 New Zealand exporters have been required by law to trade their earnings of overseas exchange for New Zealand currency at the official rate of exchange. Until last Friday other earners of foreign exchange have not been subject to the same restriction. This allowed firms and individuals performing a wide variety of services in New Zealand for which they were paid in overseas currency to build up funds abroad. These services included importing, sharebroking, advertising, accountancy, architecture, law, and journalism. For many New Zealand firms and individuals the opportunity to earn overseas currency that could be freely used (except, until recently, dollar currency) for overseas travel, the purchase of assets abroad, and for no-remittance import licences, was highly valued.

It was, undoubtedly, an anomaly that allowed these marginal earners of overseas exchange free access to the overseas funds their activities provided, while denying farmers and exporting firms—the main earners of overseas exchange—the same privilege. The Reserve Bank Bill, introduced in the House of Representatives on Friday, removes the anomaly by requiring these earners of overseas exchange to sell their currency to the banking system, as recommended by the Monetary and Economic Council in a report to the Government in January. It remains to be seen, however, whether the new measures will be effective, or, if they are effective, whether they will be beneficial. They will certainly be expensive to administer and police, they will encourage evasion, and will discourage the honest man from seeking this class of business. Above all, they will not add a penny to the country’s actual level of overseas reserves: they will merely transfer a relatively small amount from unofficial to official reserves.

The need for these new controls, as for the existing import and exchange controls, is basically the over-valuation of the New Zealand currency. The latest quotations on the unofficial exchange market place a premium of nearly 7 per cent on overseas currency. The gap between the official and the actual rate of exchange is not yet wide enough to require devaluation. It could be reduced, if not eliminated, by a period of tight monetary and fiscal policy. The latest controls are one more instance of the costs of inflation and weak administration.