N.Z. Dollar To Follow

Press, Volume CVII, Issue 31531, 20 November 1967, Page 1

N.Z. Dollar To Follow

Devaluation of the New Zealand dollar is taken for granted by well-informed circles in Wellington, says the Parliamentary reporter of “The Press.”

The point at issue in discussions yesterday was the extent of the devaluation. Three levels have been suggested. New Zealand could devalue 14.3 per cent to the British level, but this would leave the New Zealand dollar slightly above the Australian rate. New Zealand could devalue to parity with the Australian dollar, which at present is valued at SNZO.7B. It has been suggested that this would facilitate the working of the Australia New Zealand Free Trade Agreement A difficulty is that Australia has not indicated any course of action yet A third, more drastic alternative is to devalue the to the American level. Most experts favour the Australian level. They think it unlikely that Australia will change because it chose to remain on the lower level when New Zealand returned to parity with sterling in 1949. Last Devaluation Sir Stafford Cripps, then Chancellor of the Exchequer, announced the last devaluation of the British pound on September 18, 1949. Overnight, the value of the £ sterling was reduced from $4.03 to $2.80. New Zealand promptly devalued its £, thus maintaining the parity of its currency with sterling. New Zealand's terms of trade with Britain were unaltered in the 1949 adjustment. New Zealand’s purchases in dollar markets became more expensive, and exports to countries which retained the value of their currency in terms of the American dollar were encouraged. A year earlier, in August 1948, New Zealand had made the third major alteration in its exchange rate since 1929 Except for occasional deviations, the £NZ was virutally at parity with sterling before 1929. New Zealand's currency was depreciated during 1930 until £NZIIO was needed to buy £lOO sterling. New Zealand currency was exchanged at this rate until January. 1933, when the Government intervened and denreciated the value of the £NZ so that £lOO sterling equalled £NZI2S.

This rate was held until August 20, 1948. In his Budget speech on August 19, the Minister of Finance (Mr Nash) drew Parliament's attention to “a disequilibrium between New Zealand prices and those prevailing in other countries.” In his Budget speech a year later, Mr Nash reported that “during the 10 months ended June 30 last some £84.5 million of overseas exchange was expended on licensed imports. The appreciation in currency meant a saving to the whole community of £2l million on these imports. Farmers’ returns were lower, although the effect of the lower income was sorne-

what softened by an Increase in the volume of exports. Export earnings in terms of sterling increased from £ll7 million in the year ending June, 1948, to £144 million in the year ending June, 1949 slightly more than the normal annual increase. Expenditure on imports (in terms of sterling) declined from £lO6 million in the year before the appreciation to £97 million in the year after. Little Increase In New Zealand currency, earnings from exports increased by only £2.4 million. Previously, the annual increase had been more than £2O million. The value in New Zealand currency of imports fell £33 million. When Sir Stafford Cripps announced the devaluation of sterling in terms of gold and the United States dollar. New Zealand decided that its currency should remain at parity with sterling. Before August, 1948, the Australian pound and New Zealand pound were at parity. Australia retained the lower sterling value of its currency (125.100) and maintained this relationship with sterling after the 1949 British devalution. Turmoil Caused The alteration of exchange rates has in the past been the cause of turmoil in world trade. During the economic depression of the 19305, a cycle of depreciations took place, beginning in the countries in the weakest trading position. The final pattern of exchange rates was much the same as before the cycle. Now countries belonging to the International Monetary Fund have to maintain the par values of their currency (in relation to gold) with a maximum divergence of 1 per cent either way. A change of up to 10 per cent is automatically approved, as long as the Fund is notified. A further 10 per cent change requires 72 hours notice, in which the Fund will express its views on the proposed change. Recently, several countries, many of which are primary producers, have devalued They Include Finland, Uruguay, Argentina, and India Now that Britain has devalued, many of her trade partners are expected to do likewise. Already Ireland and Denmark have followed Britain’s lead.