EXCHANGE PROBLEM

Evening Post, Volume CVIII, Issue 97, 21 October 1924, Page 4

EXCHANGE PROBLEM

BANK OF ENGLAND NOTES

SHOULD BE MADE LEGAL

TENDER

PRIME MINISTER ON MB, WRIGHT'S SUGGESTION.

j' A question was asked of-the Prime [Minister in "the House of Representatives last night by Mr. R, A. Wright (Wellington, Suburbs) whether, in view of the great difficulty experienced by the Government, municipalities, and commer-, cial firms in transferring money from Great Britain to New Zealand -owing to the prevailing high rate of exchange, the Government would promote legislation permitting the free circulation in Now. Zeaalnd of English bank notes, and in this way overcome, the exchaijge problem. •• . - " Mr. Massey replied that an official.' Circulation of English bank notes, which were not legal tender, would create economic anomalies and affect the control of our own currency. These notes would replace New Zealand bank notes now issued; otherwise inflation and increased prices would follow. _ Mr. -Wright said he^hadin mind the introduction of legislation to make the notes legal tender. The exchange problem was, to-day facing the Government, municipalities, and, he presumed, the commerciarmen of New Zealand, in a serious way. There seemed' to be no way of overcoming it, but he did not see how matters could continue as they were. He was not satisfied that the introduction of English bank notes would prove .disastrous. Such; a note in". Eng-lish-speaking countries was always regarded as being worth its face value, and he could not see why. such notes could not be circulated as legal tender in this country. Suppose ,-the Government floated a loan in London for £1,000,000. When gold was the currency there was not much difficulty in transferring .that money'to New Zealand, and he presumed the banks would ■ transfer gold from Britain to New Zealand. It might.be true that the gold would not bi', circulated, but notes would be circulate 3 in New Zealand. He thought-the whole matter should be carefully - examined. The Prime Minister: "Do you suggest that we should bring out a million Bank of England notes?" - Mr. Wright,- "Yes." - __Mr. Massey: VDon't you think that if we did that we should have an inflation worse than we have ever experienced?" ■ ,/ J%; ljeailer of the' Opposition (Mr. T. M. Wriford): "No." Mr. Massey: "But we would." Mr Wright said that might be so; »lv. Massey was in a better position to say, but he (Mr. Wright) was not clear mi the point. If the introduction of a further, supply of English notes would create inflation the obvious thing, he should say, would be-to reduce our own circulation if it were too high. INFLATION AND ITS EFFECT. Mr. Massey ( stated that £1,000,000 worth of Bank, of England notes sounded a lot, but, compared with the amount .of our exports, it was very little.. Undoubtedly it would assist towards infla,tion to follow out the suggestion. Inflation meant ;a higher cost of living and dearer commodities. Once more currency —not money—was available, then the cost, of living and the price of commodities were bound to go uy. The matter had been thrasTied out'over and over again, and. he had been in hopes of finding some way out or the difficulty. • mho < ?J 0"' J- A- Hanan ' (Invercargill): "The only thing to do is to restore the gold standard." _ Mr. Massey said ho had been thinking of suggesting tlyit a country in a position like New Zealand should dspoHit securities in London and that notes should be issued against, them here. He believed things would never he satisfactory until they got back to the gold standard.

Mr. F. Langstone (Waimarino): "In tho year 2000."

_ Mr.. Massoy stated that fluctuations in exports and imports would occur, and that would affect the matter to a certain extent. Ho mentioned that if we -wore able to transfer money from New Zealand to London they could get 30s per cent, premium on it to-day. He did not see any prospect of a change for the better just at present. Mr. M. J. Savage (Auckland West) said that authorities the world over- Were satisfied that wo would never get back to tho gold standard. It would be industrially disastrous if they attempted to do so. It was the duty of Parliament to face the position. He suggest-' ed that a Recess Committee to deal with exchange and .financial problems would bo ablo to justify its position. The Hon. W. Downie Stewart (Minister of. Customs) remarked that it was an extraordinary thing, but there was no bank in Now Zealand which would not give a pension for life to Mr. Savage if ho could find a solution of the exchange difficulty. It was worrying tho banks a good deal. Mr. Savage: "I wish I had half their worries." The Minister: "They would g'iyo the hon. member a. very handsome donation if ho could solve this problem." The banks had millions of money invested in England which they eagerly wanted to get out here, and all they were getting-, on it was a nominal rate of interest, which was not equal to half of what they would get if tho money was invested here. The banks in New Zealand had served tho farmer and the merchant in a way that had not been'done by any other Do-minion...'-Mr.. Stewart mentioned that he -had been.speaking to a banker the'other day, and. he had told him that he had boon trying to' do some business in Australia. In order to get some notes. from the Commoiiwealth Note Board the' bunker offered the board £200,000 in sovereigns for 200,000 notes, but the board would not take them. Tho board said that if ho paid 6 per cent, it would lend him the notes, provided he dc.posited the gold. There was-no section of the community more anxious to find a solution of the difficult problem of exchange than the banks . themselves. So far as lie-had been'able to discover tho banks had no motive in trying to regulate the, exchanges in a way which would be disadvantageous to the consumer or the public. .'■■-. The Prime Minister, referring to dis^ oii63ions at the Economic . Conference reference to which had been made by Mr. W. A.^eitch (Wanganui). stated that the opinions of the experts were that until they gqt back to the gold standard things would never be right • they did not think they would have to remain long until they got back to that standard. However, that was more than a. year ago, and' they had not .got back to the sold standard vet.' On.. several occasions he had asked banks here (6 1 transfer .-monny for \cw '/.catnml fiwn London: and they had positively dc■cljiicd to do il.,'He'-huiK-d '•;!.■ mViufi I .-of. the difficulty 'would, be found, ' ]