Exchange Rate

Dominion, Volume 26, Issue 88, 7 January 1933, Page 12

Exchange Rate

Sir,—Although the question of the exchange rate has been well discussed, there are still ambiguous parts of the subject which appear to need more attention. There is a widespread impression abroad that the sole cause of New Zealand’s misfortunes was the fall of the price-lever in Britain. Assuming this is so, and that prior to the fall, our finances, trade, and industry, weue sound and prosperous, and happily adjusted, it then appears obvious that as our exporters and importers represent different bodies of men with different interests, a fall in the price-levels of from 30 per cent, to 40 per cent, in Britain, could not fail to have 'devastating effects. Had our buying and selling been under one control, then volume for volume our exports and imports would have shown little change. For if we sold cheap, we also would buy cheap. • Our interest payments would have increased on* or two millions, and it is claimed there was an additional loss occasioned through the prices of British, manufactured goods not falling to the same extent as our primary products. This latter could only be a preliminary loss, as vide Bank of New South Wales’ chart, British wholesale prices are the lowest in the world. On the above showing, our. losses to date should not exceed £10,000,000, a severe loss indee/1, but nothing to whqt we actually have suffered. The havoc in New Zealand has been mainly caused by maladjustment. The price-level of our primary produce fell not only in Britain, but locally, also, thus inflicting an irreparable loss on the farming community. Other sections of citizens were enabled to buy not only their home-grown foodstuffs cheaper, but all imported goods as well. This is not to say they have not suffered, perhaps even more than our farmers.. But whereas the farming section suffered by a direct blow delivered from abroad, the loss and suffering of the other sections were • simply the reflex of the losses sustained by the farmers. Had it been possible-for * the primary producers to carry their own losses, the rest of the community would . have gained .greatly by the lower prices of food and imported goods. Being really a community, this was not possible. It seems evident that if on the advent of the depression the exchange rate had been raised to a' level commensurate . to the price-fall, the greater part of our troubles need not have happened. The foregoing, of course, assumes that New Zealand had no part in causing the depression. If. as some assert, we contributed. through overborrowing, land speculation, and tariff restrictions, our full share, then even a high exchange could not have saved the position. Although late in the day. when much readjustment has taken place, an increased exchange rate still appears to offer some alleviation. But it must not be overlooked, a precedent will have been established. There may come a time. as.during the war, when the reverse may happen, and £7O New Zealand buys £lOO on London. If Parliament sanctions an increase in the - exchange rate to help our farmers in their affliction, a substantial increase of the land tax should be insisted on to prevent future speculation, and a real lowering of the tariff barrier to enable trade, to revive should be begun without delay.—l am. etc., ECLECTIC. 'Wellington. December 31.