EXCHANGE POSITION

Evening Post, Volume CVIII, Issue 64, 12 September 1924, Page 10

EXCHANGE POSITION

HOW IT IS CREATED

THE EXPORTERS1. "BURDEN."

One of the greatest dangers?, that this country has to face is widespread ignorance of simple economic truths, remarks the-."Sydney Daily Telegraph." There is a very general belief on the part of people who should know better that the rate of exchange between Australia and London .constitutes.,an unwarranted burden upon Australian primary producers: ".' •''...,• The latest public utterance of that fallacy was made by the retiring, president., of the Brisbane Chamber 'of. Commerce (Mr. F.,-W;, de Little);, 'at the annual meeting of that body last week. Mr. Little is reported to have stated that the present rate of. exchange on a 60. days', sight bill against-. wool cost more than the, shearing of a sheep; that the charge against the wheat grower amounted' to about LJd a bushel, and against the butter shipper to about 6s a cwt. .Primary producers,. declared the speaker, were' adversely affected by these exchange rates,"which were practically equivalent toan export tax: Secondary producers .also were; suffering by reason of .the excessive amount ; '6f importation owing to the country's inability at present to put . Australian money in London to any other use than the purchase of goods manufactured overseas. ,'■".', V .■ ' ' ' . . The exchange Tate between Australian and1 English currencies—or, for that matter, between any Wo currencies—is based primarily upon their relative value iii terms of goods. If, say, 98 Australian' pounds are obtained by' the Australian- exporter for every 100 English pounds which'he has to his credit in London, it ie because the purchasing power of 100.English pounds is equiv* alent to that of 98 Australian. An exporter can buy rio "more-goods in Ensland with £100 than he can in Australia with-£98;"; '.' ' . '■■:'■ • Banks, of course, \ are not in business to conduct exchange . operations for nothing. Taking current telegraphic transfer rates, (in order ;. to';, eliminate the. factor of interest' on. other, usances) published by the banks, ■it is seen that the buying rate in Australia for London money is SOs per cent, discount, and the selling rate 30s per cent, discount.' The difference' is 20s, "which when, apportioned between £100 bought and £100 sold gives the bank*? a profit °J, • lOs. P er cent. Since the exporter otherwise gets an .equivalent, in purchasing power, the only "tax". he has to S!. **« 10« Per cent.,' Whether the profit to the banks is too high is another question. But it may be pointed out m :defence;of, the banks', charge that demand for Australian .money fn ■exchange^ for English' varies-Consider-. ably with the season. Sales by exS^ do, noV syncKr°nise on the ihole ouentlv- ?^ aSt V •l mp°rters- ' -Cone«quently the banks, have, to keep con-siderable^-balances; idle or invested at short-call-at low,interest, rates; so that funds ma r be available" for the conveniVeg; °f^ stT er3;^ -an periods of the I a j * S loss thus sustained has to be deducted-from the nominal profit of 10s per cent. vv '■/. .As to the : complaint that money in London can^ be used ' "only" to purchase goods manufactured overseas, it may •be.^asked.to what other■ purpose the funds con d be. put. A nation can benefit only,. m - the long run, by exports if it. takes imports in return. That

is another economic truth" which many' public men would do well to ponder. Supposing,;as Mr. Little suggested,;the Notes Board were to issue notes in Australia against, cash1 balances or securities' in London. The mere issue of paper here would riot transfer wealth. What would happen would be a further depreciation of the.value of the Australian paper pound, since additional currency could only get a value by detracting from the value-of that already in circulation. Prices would rise, and Auetraha, would bs further than before from the gold standard goal, which-Mr. Little admits is desirable, but, cannot be achieved in a few weeks or months