EFFECT OF RUMOURS.

Evening Post, Volume CXII, Issue 120, 17 November 1931, Page 9

EFFECT OF RUMOURS.

."Looking to the internal adjustments necessitated by tho cessation of oversea borrowing, it is equally' true that the existing exchange rate is playing an important part. Deliberate deflation at tho expense of the active producers is just as dangerous to-day. as deliberate inflation in favour of. construction workers would have been six months ago. It would repeat in Australia the tragic effects on employment and export trades of Britain's policy from 1925 to 21st September, 1931. The try can afford,. and ultimately ,■ determines the volume of imports the country can afford, and ultimately detemines the flow of Government revenue. Pending a strong recovery of . export prices, a fall in exchange would destroy the purchasing power of the - country districts, cripple afresh . Government revenues, and undermine assets in all directions. The very rumour of it has checked tho rise in some markets already. "•Unless, therefore,'thero is evidence of'a marked surplus of funds in London above probable demands for them in the near future, the untoward effects of a fall in the exchange upon Australia's recovery weigh heavily against it.

AUSTRALIAN COMMITMENTS. '"A broad survey of Australia's income from exports on the oiio hand, and of her commitments for imports, oversea interest, and other obligation's which must be mot out of tho proceeds of exports, docs not afford any ground for lower rates. It is true that export prices have risen, but the'rise is for the most part due to tho depreciation of sterling. Tho future course of such prices will be obscure so long as tho future relation of sterling to gold is unknown an,cl until a decided recovery over and above the depreciation of sterling is evident. Stocks of imports are low. As purchases increase they must be replaced. A rise in the October Customs, revenue shows that the process is already beginning. A considerable surplus in the value of exports over that of .imports is thus unlikely. In any event there arc shortterm debts to be repaid in London as well as imports to bo paid for and interest payments to be met. It, must bo remembered, too, that Australian production for export during tho last two years has boon at record volume. | Out of such good seasons sonio restoration of Australian reserves in London would bo wise now that borrowing there lis so difficult.

"On all counts, stability in the present rate of exchange is indicated as the desirable and sound line of policy. An authoritative statement that such a policy will bo followed by the Australian banking system as a whole would do much to restore the confidence shaken by tho low rate propaganda of tho last few days."