Economist expects rates to float on

Press, Volume CXIV, Issue 33520, 29 April 1974, Page 12

Economist expects rates to float on

(Xeir Zealand Press Association)

WELLINGTON, April 28

The chief cashier of the Reserve Bank has forecast that floating exchange rates will continue in the immediate future with little or no progress towards the International Monetary Fund's aim of “stable but adjustable” rates.

Addressing the Wellington) branch of the Economics! Society of Australia and New! Zealand in Wellington on! Saturday, the chief cashier,! Mr L. Knight, also predicted little progress towards a mechanism for improving the ; adjustment system. He said the International 'Monetary Fund would prob-' ablv change, but not neces-' i sarilv to become stronger i “It needs more teeth but is! unlikely to get them easily. “The special drawing rights will be given a value based on a basket of currencies and market interest rate, but will not replace gold and currencies to a significant extent in the short run,” he said. Mr Knight said only the [poor countries, with most to gain from an aid-linked ! formula for the issue of [special drawing rights, regained a clear sense of: urgency for reform of the system. “The future of the special idrawing rights remains clouded by the problem of'

I marrying off the legitimate j demands of developing coun-i I tries for more aid against the! 'need to relate the issue and I control of the rights to the needs of the monetary system [as a whole.” The existence of large amounts of money in the! hands of the oil-producing' I countries “hung like a 'Damoclean sword over the j monetary system.” . The establishment of a short-term credit arrangement to assist oil consumers to cope with funds in favour of the oil-producing countries could not be postponed for long, he said. Mr Knight also commented on the effects of the daily adjustment of the New Zealand exchange rate based on maintaining a fixed relationship with a trade-weighted basket of currencies: “The daily movement of exchange rates is unavoidable in present circumstances. The adjustment of a forward exchange system for trade transactions has helped to keep disruption of trade at '>a fairly low level.”