Gain from U.K. devaluation

Press, Volume CXII, Issue 32977, 25 July 1972, Page 2

Gain from U.K. devaluation

(New Zealand Press Association)

AUCKLAND, July 24. •

A British devaluation of five per cent would mean a net gain to New Zealand of about s6m a year, the Minister of Finance (Mr Muldoon) said tonight.

This could be set off against New Zealand’s loss on reserves, he told the Society of Accountants.

“We have roughly ssoom in reserves in the United Kingdom, and in terms of other currencies that will depreciate by the amount of the devaluation,” he said. “This depreciation will be offset, however, by about half that amount in sterling obligations.

"The movement of other currencies, up or down, will of course also affect those reserves, and the obligations

Which we may have in those currencies. "On current account, however, we have each year a net cash outflow to the United Kingdom. “Although we buy less from Britain than we sell to Britain, we have a very substantial outflow in the form of invisibles, that is, travel payments, financial and insurance payments, including interest, freight and transport payments, and similar items. “When the invisibles are added to trade there is a substantial net balance of over sloom in favour of Britain.

“The effect of all this is that in current terms a British devaluation of 5 per cent would mean a net gain to New Zealand of about s6m per annum, to set off against our loss on reserves.”

The floating of the British pound was one of two fortuitous occurrences which had affected the moves taken in the Budget, Mr Muldoon said. In each case they had had a “somewhat dampening” effect. The second was the collapse of the JBL group, which had an effect on the Whole economy. “We closely watched the position of other deposit takers, and it appears that after an initial shock, investment patterns are starting to settle down again,” said the Minister. “It will always be a fact that risk and return are equated, although some investors w»lf investigate more fully than others before they hand over their money.” The Minister said he felt that in spite of those occurrences the economy was still on an upward curve, the momentym of which was likely to increase in the months ahead.