EXCHANGE RATES

Dominion, Volume 25, Issue 94, 15 January 1932, Page 12

EXCHANGE RATES

Effect on Producer BENEFIT OF PREMIUM Claim for Free Market j Further views and information concerning the question of exchange rates and Government control of London credits is contained in a letter to the editor by Mr. W. A. lorns, chairman of the New Zealand Dairy Board. Mr. lorns writes as follows May I supplement the report of the deputation of primary producers to the Prime Minister and members of the Cabinet by emphasising what to my mind was the most material point brought out in that deputation? This was that producers are being unduly penalised by the pegging of the exchange rate with Britain at a rate below its proper free level. In line with Australian experience, from whose condition this country cannot now be regarded as 'materially different, our exchange rate, if freed from restrictive influences, would in all probability rise to not less than 30 per cent The export value of the Dominion s goods to-day is computed at £35,000,000 annually, including the 10 per centpremium accorded on to-day’s exchange rate. ■ In addition to export goods, the farmer sells .to consumers in New Zealand,'in the form of butter, cheese, wool, meat, etc., goods to the estimated value of £15,000,000 annually, making a grand total of export and domestic production of £50,000,000. On the exchange position as it stands, the producer, in comparison with his Australian confrere, is being deprived of a 20 per cent, premium. Twenty i)er cent, on £50,000,000 is £10,000,000, and that is the sum of which the producer is being deprived by the unwarrantable restrictions imposed upon the exchange rate. Additional Money. If the exchange rate were freed and afiowed to rise to its normal prospective figure of 30 per cent., the producer would have that additional money passing Into his pocket. While it Is true that this would add to the cost of goods consumed locally, it is only right that it should do so, because the farmer today is selling his goods in New Zealand at the lowest price that has obtained for the past 40 years, while his costs are still high. It is not to the interest of the towns and cities in the Dominion that they should purchase the farmer’s goods at unduly low prices, because that is immediately restricting the buying power of their own best customers.

The reason given to yesterday’s deputation by the Prime Minister for agreeing to the banks pegging the exchange rate at 10 per cent, was that a departure from that rate would increase the cost to the Government of remitting to London the annual interest bill and repayment of loans. According to the Prime Minister’s figures £12,000,000 has to be paid to London this year, approximately £1,000,000 a month. At the existent exchange rate of 10 per cent, that will cost the country £1,200,000. If the exchange rate were freed and rose to. 30 per cent., the cost to the country would be £3,600,000, thus adding £2,400,000 to the Government’s bill over the existent cost. From the primary producer’s point of view, therefore, he is being deprived, on the Government’s own statement, of £10,000,000 In order that the Government be saved £2,400,000. On behalf of the primary producers, the deputation strongly protested against that situation. We pointed out to the' Government that it, as an important landowner, would benefit by the 1 Increased prosperity which would accrue to the country from a free exChange rate. Grazing at a Loss.

Mr. Jones, chairman of the Meat Board, estimated that at the present time 10,000,000 sheep in New Zealand are being grazed at a loss; i.e., they will not be able to pay rent and interest for their grazing. The Government, as an important owner of lands bn which these sheep are grazed, will I OSe —in fact, is now losing—the rent and interest that ‘would normally be paid by those landowners. That factor in itse’.f would reimburse the Government largely for the 2} millions extra cost of remitting money to London. Even more important than that factor, however, is that the extra ten millions, circulated among New Zealand primary producers, would give them more money for distribution, would put heart into them to expand their business and absorb men at present unemployed, and in its percolation through the rest of the community would materially add to the prosperity of the whole State. In addition to the prosperity of the community, that money would increase the ability of the communtiy to provide the public revenues, and the , net outcome in our view is that the Government, instead of making a loss through allowing exchange to take its normal course, would, in point of actual fact, make a handsome P roflt - , . .. . The situation as it stands is that the banks and commercial interests have stabilised the exchange at a point to suit themselves, regardless of the interests of the primary producers. In the past those commercial interests have been extremely prominent in insisting upon ■ the advantages of free markets. The producers now ask for nothing more than that the normal course of the market be allowed to operate. They should not be deprived now of what the commercial interests formerly advocated, viz., a free market for exchange. These points constitute the case for the primary producers. They ask for no subsidy or undue assistance. They simply ask that the normal economic factors be allowed to operate. The prime Minister admitted that the exchange would rise if it had not been pegged and the bank commandeer instituted. The very fact that ■ that commandeer has been instituted prov cs that the exchange would rise. The Government’s action penalises every primarv producer in the country at a time when they require assistance and not hindrance. P.S. —Dairy producers last year received £905,000 by way of exchange premium. Had the Australian rate obtained they would have received £4,400,000. That position is giving the Australian dairyman a great ad-vantage-at the present time.