MOVE TO RAISE EXCHANGE RATE

Dominion, Volume 26, Issue 49, 21 November 1932, Page 10

MOVE TO RAISE EXCHANGE RATE

Mr. Forbes Reiterates Government Attitude BUSINESS OPPOSITION HARDENING Interest in Return of Hon. W. Downie Stewart (By Our Parliamentary Representative.) Opinions concerning the proposed increase in the exchange rate, New Zealand on London, still differ widely, and, although there were no developments in political circles over the week-end, interest has increased chiefly because.the whole position is clouded with uncertainty and the Government has declined to align itself officially’with either side. Although at the moment there is no definite prospect of the question being raised on the floor of the House, it cannot be overlooked that there is a comparatively strong body of opinion among a section of Government members that the Government cannot afford to remain passive on a question of such national importance. For this reason it is within the bounds of possibility that some attempt may be made to force the question to a division on a point of policy with a view to ascertaining just where members of the main parties and the Independents stand. If such a step is taken, it may give rise to unexpected complications. Although it is commonly asserted that the Government has a membership predominantly rural, it is not by any means certain that the section agitating for a higher exchange could secure a majority in the House in the hypothetical event of a divsion being demanded. It is stated that 26 members have signed a letter, the purpose of which is to indicate to the Associated Banks the strength of the political movement for raising the rate to 25 per cent.

In addition, Cabinet members favourable to an increased rate have to be reckoned. It K stated that Messrs. E. F. Healy, J. A. Macpherson, P. MeSkimming and A. M. Samuel, while in sympathy with the movement, have not signed the letter to the Associated Banks.

day of the Minister of Finance, Mr. Stewart. He has all along been strongly opposed to a high rate, and members who are agitating for the high rate state openly that they are anxious to see an increase brought about before Mr. Stewart returns. As several of Mr. Stewart’s Cabinet cloleagues are keen to see the rate increased, his attitude will be watched with interest if the rate is raised. Central Bank Proposals. The fate of the Central Reserve Bank Bill is still uncertain, and the proposals contained in it are of more than passing importance at the moment, as the Central Bank scheme is in many respects allied with the exchange rate controversy. The fact that the Government has up to the present desired to establish this bank was admitted by one Minister over the weekend to be an indication that the Government was not altogether satisfied with the attitude of the banks upon a question of such national importance as the level of the exchange rate. The Prime Minister was asked on Saturday what the Government would do if the banks refused to raise the rate. He said the primary producers were in a serious position, and . the Government had tried to help them in various ways. Instead of improving, conditions had become . worse, but Cabinet had not yet considered what steps would have to be

There are 50 members in the Government party, and it is believed that at least ten are opposed to the higher exchange so that, at best, there are probably no more than 40 supporters of the movement within the Coalition, including several whose minds are not made up finally. 'in these circumstances the atttitude of the Labour Party and the Independents will be watched with some interest. The Leader of the Opposition, Mr. H. E. Holland, has announced that the Labour Party, although it has briefly discussed the exchange controversy at a meeting called for another purpose, will not deal fully with the matter until the Government’s attitude has been clearly defined. In an attempt to counteract the influence of those members who approached the Government last Wednesday with a view to securing an increase in the rate, it is stated that a deputation of urban members will wait on the Cabinet early this week to impress upon it the opinion that any increase in the rate would be unwise. Action By the Banks. On the other hand, the fact that the banks may themselves decide to take action in the very near future cannot be disregarded. ' There is a definite opinion that in spite of the present uncertainty, the rate will be raised, and that very soon. The usual Cabinet meeting was held on Saturday, but the Prime Minister said afterwards that no decision had been made one way or the other regarding the exchange rate. He reiterated that the whole question was one for the banks, and that the Government would not interfere. In addition, he stated that when he said the previous evening that the Government would not tolerate political intereference, he meant that Cabinet would not attempt to sway the banks, but that there was nothing to stop private members from approaching banking interests. Complications are foreseen by those members favouring tjie high rate by the return from London next Wednes-

taken. Mr. Stewart’s advice on the Central Bank proposals has been awaited by the Government, and Cabinet has decided within the past few days that nothing will be done until Mr. Stewart’s return, although it was thought some time ago that a start would be made by having the Bill introduced and read a first time. However, there is now an opinion in the lobbies that certain banking interests may endeavour to induce the Government to drop the Bill this session in consideration of financial assistance for the farmers, either in the shape of a bounty on exports or a higher exchange rate. Although the former pian seems at the moment to hold favour in certain banking circles, according to statements made in the lobbies, some members of Parliament are unshaken in their belief that the exchange rate will go up. It is understood authoritatively that Cabinet will have nothing to do with the bounty scheme and this opinion may be significant as far aa future events are concerned.

PRESSURE ON BANK “Real Intentions Revealed” PLAIN TALK BY MAYOR Whenever the question of artificially raising the rate of exchange has cropped up it has been strenuously opposed the Mayor (Mr. T. C. A. Hislop) because of the disastrous effect that such an action would have, not only on the finances of the Wellington City Council but on those of every local body in New Zealand which has raised loans in London. Mr. Hislop maintains his formerly expressed attitude, and in a statement on Saturday he said: — “Exchange varies in price with the rise or fall in the volume of New Zealand funds in London. To-day there is a surplus of our funds in London above the amount required for national purposes. Therefore, in accordance with economic principles, the rate should fall, and not rise. With the wool export season at hand the surplus of London funds will increase and not diminish. “Now the Mask is Off.” “A number of members of Parliament want to exert political pressure on the banks to obtain a fixed artificial rate of exchange at least 20 per cent, above the rate justified by this trade position. These people a few months ago said all they wanted was free exchange and not an artificial rate. I was sceptical of their good professions then, and now the mask is off. Their real intentions are revealed. “An increase to. 30 per cent, as adcated by these people will be disastrous to the city. Additional interest to the amount of £30,780 per annum would have to be found. This W’ould necessitate either a serious increase in rates and charges or a cutting down of expenditure with wholesale dismissals of men. “Furthermore, the additional drain upon our resources would compel us to close down on relief works and to throw the entire burden upon the Government, and there can be no doubt that the cost of living throughout the community would rise, while at the same time the number of unemployed would increase. Disturbing Knowledge. “I am glad to see by this morning’s paper that the Prime Minister states definitely that the Government will not interfere and that the question is one for the banks alone.

their representations to the Associated Banks. “It appeal’s that an attempt is being made to exert political pressure on one member of the Associated Banks while trying to create the impression in the public mind that, the Associated Banks are being left free to decide the matter. “The Bank of New Zealand! is, of course, the Government’s banker; a position which it will cease to occupy in the event of a central bank being established, It is, however, understood that suggestions have been made that proposals for the establishnient of a central bank might be held over indefinitely, or that the Bank of New Zealand might itself be constituted such central bank. “A few months ago the General Manager of the Bank of New Zealand stated that an artificially fixed high rate of exchange would hot be in the best interests of the country. The chairman of directors of the bank said at the general meeting of Shareholders held recently that the proposal to fix an artificial high rate would, if adopted, suit the bank, but that it would not be in the best interests of the country. Momentous Directors’ Meeting. “A special meeting of the directors of the Bank of New Zealand is to be held this week. From the results of that meeting we shall learn whether or not the directors are able to stand up against political pressure and abide by their declared principle that an artificial high rate is not in the best interests of the country. “In short we shall learn whether the bank is to stand for what It has said are the true interests of the country or whether these interests are to be sacrificed under political pressure. “It is noteworthy that all this agitation has been brought to a head in the absence from New Zealand of the ablest financial brain in the House, that of the Hon. Downie Stewart, Minister of Finance. Perhaps his views do not suit the inflationists. Panic-stricken Politicians. “It would certainly appear from the way the agitation has arisen that a number of politicians are becoming panic-stricken, and are endeavouring to foist their views on those whose occupations, training, and responsibilities make them alone fitted to deal witli the situation. Those who are in a panic are least fitted to advise upon a matter, the mishandling of which may so seriously reflect upon the stability of the country and its reputation abroad.”

“It Is, however, disturbing to know as I do know, that representatives of the Government have made direct representation to the Bank of New Zealand. and have not, as in the past, made