HIGH EXCHANGE

Evening Post, Volume CXI, Issue 92, 20 April 1931, Page 10

HIGH EXCHANGE

SOME OF THE^ CAUSES

EXTERNAL' PAYMENTS

"Evening Post," 20th April. "Ws an paying dearly for the use of til** irretch*d wo.-d 'Australasia,'" said Mr. Chorlw M. Bowdsa, Fellow of the _V»w ZtaUai Society ol Accountants. He jrsi yeoantly .addressing a gathering of Pannevirke men on the present 'economic situation of the Dominion, and th« subject of exchange formed a part of hu discourse. The current exchange ratea on bank remittance ' he described in very burdensome to importers. "In the firrt place let it be admitted," he went on, "thai whilst exchange is a charge In respact to imports, it is a premium on exports. It increases the amounts received by primary producers—if at t tie same time it acts as a deterrent to mports, the affect will b« beneficial in the ' 0"-Biifc Utnar« is a general feeling that rates nre unduly high, -and that New Zealand banking policy has been strong y influenced from Australia. One had put H more crudely by saying, 'We are being whipped at the tail of Australia s cart. This is based to some degree on the tact that rates for transaction between Australia and New Zealand favour exports 'from' Australia to New Zealand—presumably to attract money to Australia—although the balance of trade for years past has been 'against' New Zealand. One would have thought the rates would be the other way. Are the rates being used to bolster up Australia's finance at the expense of New Zealand? DISCOURAGING REMITTANCES "But the trade figures tell only part of the story. Considerable sums are payable from New Zealand to Australia for interest, etc., which would increase the ■balance against New Zealand; but at the same time I believe New Zealand funds are being used in considerable degree to make payments in London on Australian account. Possibly the total of such payments actually exceeds the excess of imports plus interest payments. If so, although the 'trade balance is in favour of Australia the cash balance will be in favour of New Zealand. In ordinary course the balance would be' liquidated, but the banks .in Australia are short of funds there, and the high rate ot exchange is designed to discourage remitiances. The law of supply and demand operates in this as in other fields. pnß pasrnaz Atsjj na9Ai;aq sa^v.t Bi{£,, London are also affected by the Australian position. It is stated that ruling charges are not justified by the figures o| trade relating to New Zealand alone. I think this probably is true, but, at the same time, one wonders if we could expect otherwise. Our relations with the Commonwealth are very close, especially in shipping, banking, and insurance, and in the minds of many people overseas, we, Australia and New Zealand, are one fiscal unit. We are paying dearly for the use of that wretched word 'Australasia, which, sad to say, is used even by New Zcalanders." ' . . Air. Bowden found it very, difficult to "et reliable figures on which to base his opinion as to the fairness of the exchange rates ruling. Many influences operated to modify the mere trade balance figures INTEREST ON OUTSIDE LOANS. The speaker reviewed the trado figures as between New Zealand and the United Kingdom. For the ten years endin" 1020 they, showed average annual expculs'of £49,337,884 and imports £47.----•'27 00S, an annual average excess of exports of £2,110,856. N With the exception of trade between New Zealand and Australia, most of these exports and imports were financed through London. Deducting the Australian figures increases the excess of exports over imports to about. 4% million pounds per annum over the ten' rears period. But that is not the amount London owes New Zealand. T3>«■Dominion has payments to make there— mvis.ible imports," as they are termed. I'or instance, over £164,000,000 of New Zealand debt is domiciled in the United Kingdom. So that something like 7% million pounds annually has to be paid there for interest. Every resident of New Zealand who visits the Old Country leaves money there, and his passage money is eventually remitted there. Suppose Vk .millions is put under that heading, after ■allowing for the.-money brought into this country by visitors from overseas. And there are amounts sent to Old Country ,linns representing profits on New Zealand branch transactions. Ihen there are freights and insurance premiums, and exchange itself, but ho had assumed that the 10 per cent, for ad valorem included in the import figures covered that, though possibly it did riot. ' A DEBIT BALANCE. "in any case," Mr. Bowden remarked, "the 7% million interest and 2Vz million other charges converts our favourable balance of 4,4 million into debit of 5% mil•lion. That has been going ou, and the .'exchanges have been stabilised all these years solely by the fact that annually the Government has borrowed money in London, which being placed to New Zealand's credit there has offset the unfavourable balance referred to. /"This past year, of course, our unfavourable balance of trade is very much greater than usual by reason of thea'e■duced level of export total funds—the financial balance is heavily against New Zealand, with the inevitable result of sharp increase- in exchange rates. Australia is in a worse plight, and her rates are correspondingly higher. "The fact of the matter is that our currency is depreciated by 10 per cent. If ii foreign nation is living beyond its resources—failing to balance its budgetits creditors look askance at its finances, and. its currency falls. That is expressed by altering the quotation of its coinage in London; so many more florins,'pesetas, dollars, cents, as the case may be can be bought for the pound sterling. Our coin-i age is the same as Britain's, -and so the depreciation is expressed ns a percentage or premium without which they will not buy bills from us. The effect is the Kime. ''Intimation that wo have taken (he position in.hand —that we are reducing our expenditure—that we intend to balance our . budget, will restore confidence and appreciate our cxirrency—or to put it another way reduce our exchange charge. Perhaps a policy of reduced imports and recfuced expenditure would be induced if we all realised that for years', we have been living on borrowed money for w.liich wo now have to pay."