EXCHANGE RATE

Press, Volume CIX, Issue 32053, 30 July 1969, Page 18

EXCHANGE RATE

Flexibility Urged

The adoption of a flexible exchange rate system for New Zealand, with the abolition of import restrictions and tariffs, was suggested by Mr E. McCann, a lecturer in economics at the University of Canterbury, at a meeting of the Christchurch branch of the Economics Society of Australia and New Zealand last evening. With such a system there would be no balance of pay. ments deficit because the price of foreign exchange would move until the foreign exchange supplied equalled that demanded, said Mr McCann. Restritcions on trade such as import and exchange control would become redundant as they would be replaced by a depreciated exchange rate which would optimally allocate resources between production for export and the

domestic market. Mr McCann said that the New Zealand experience of inept monetary policy under fixed exchange rates had induced foreign borrowing with its claim on future income. Under flexible exchange rates there would be no need for the Government to borrow to support the currency and so it would not have to reduce the country’s future disposable income. Movement towards free trade and flexible exchange rates would increase efficiency and ease the impact of a future reduction in imports, should there be any reduction, or speed the movement of resources should the export demand increase.