N.Z. Devaluation Seems Unlikely

Press, Volume CIX, Issue 31985, 12 May 1969, Page 18

N.Z. Devaluation Seems Unlikely

(Bu the Commercial Editor/

Since the resignation of General de Gaulle, a new factor has had to be considered by stockmarket investors: the probability of devaluation.

Although in the first week international money markets were fairly quiet, last week saw on most exchanges hectic trading conditions, almost amounting to chaos, and the international currency situation has become very tense indeed.

New Zealand markets will be affected only at several removes. The direct implications for New Zealand of a unilateral devaluation by France, or a unilateral revaluation by Germany may for all practical purposes be ignored by the market. Even if Britain would have to devalue in the wake of France—and although sterling again finds itself under great pressure, it is almost certain that Britain would not do so unless a French devaluation was much larger than expected—it would not

necessarily follow that New Zealand would devalue. Much would depend on the attitude of New Zealand’s other trading partners, especially Australia. And Australia’s attitude would in turn depend on what its important trading partners did, especially Japan. It would therefore seem that New Zealand would most (likely maintain parity with Australia, that Australia would devalue if Japan did, and might even if Japan did not, and that Japan’s attitude would depend on how large a British devaluation it was faced with.

In any case Japan wpuld have to consider its relations with the United States.

At the time of writing it would appear that a French devaluation might be about 10 per cent—if Germany would revalue the mark upwards by at least 8 per cent. In that case Britain probably would prefer to weather the storm, especially since a British . devaluation might cause a round of devaluations by its trading partners. As a matter of economic)

France should devalue as soon as possible. Technical factors, such as speculative pressure on franc, sterling and United States dollar reinforce this. But political considerations are responsible for a desire on the part of the two countries most involved. France and Germany, to postpone the decisions.

Germany will have elections in September, and France must elect a president by June 1.

France’s Prime Minister (Mr Couve de Murville) may not. approve a devaluation during the acting presidency of Mr Poher. Meanwhile the flow of speculative money goes on: Britain lost £lsom in 10 days in efforts to support sterling. Germany spent SUSBSOm in buying marks, Denmark suspended all forward exchange dealings, the United States Federal Reserve Board has ceased to supply marks, and there is no saying how much reserves the French are losing day by day. But it would appear that New Zealand markets will be relatively unaffected. There are too many uncertainties to make sharp calculations possible, but the odds on a New Zealand devaluation would be about one to 10.