EXCHANGE QUESTION

Evening Post, Volume CXIII, Issue 25, 30 January 1932, Page 14

EXCHANGE QUESTION

BETWEEN TWO SCHOOLS

« G©VEft«HyiEMTfS ATTITUDE

;; iMTICULT SITUATION

No good purpose can be served by ,: *ny longer disguising, or covering up ----- the fact that considerable uneasiness, * is being felt in commercial and finan-

cial circles as to ' the Government's

~ attitude towards London' exchange. ;" It is the Chief business topic in Wei- ';, lington for certain, and is discussed with doubts and, misgivings. Business . is hampered by the suspense., lnforma.- ---; tion has been received in the city by

cablegram from London to the effect

...■ that banks, doing business with : New' - Zealand will not now negotiate drafts

. ,£or collection in New Zealand, but that ' they insist on letters, of. credit being established;.. Inquiries made by "Tho - Post" at the-banks yesterday failed to obtain confirmation of, these reports. !X Something like rationing of London V funds is understood to be in preparation J>y some of the banks, and .this is highly ,', probable Uncertain cases. • ,

One fact, however, stands put and is, v- -jbpiite; definite,- and that is the anxious

, , state ;of mind of many engaged ia.commerce as to where they stand, or,are - likely, to stand, in the booking of fur- :. .ther business, in going after.new busi-

pess, and in "giving their clients "some idea as to what the landed costs of goods arelikely. to be with the;;pbssitility of the present rate of exchange New . on London being adyanee^.': ■Business under; these . cqndi«.tions is not only harassing but almost impossible. Besides, every firm may not be in a; position at present to put up'letters of credit; ' '

, But this is one- phase, yet enough in ~: itself, .of the difficult conditions of ■ .trading in New. Zealand. The question ' is being freely asked, not without apf.,; prehension, whether \the Government ; . : . will stand to the existing 10 per cent. -J. rate ,of exchange or yield to insistent and increasing pressure from a' large >■■ Beption.of, primary producers for a subii rtantial1 increase in that, rate; or whether;; as it: is •■ sometimes expressed ;'.;.. perhaps without, realisation;of what ;. the phrase might mean, the' Government should "let the exchange market take -■. its course. '' ~,' ' : '■■.■:..•■.■ !- , •■■ : DIVEBGENT VIEWS. >'■ -Tiere are clamours for''-unpegging -- .the rate?'; and there are also "-state.-" ... iments made by bankers that the "cur- :.' |ient fateis in accord with the "market "" jandj therefore,. as the .rule is not ;: ''pegged" there is nothing to'; "unEcg r ". Thus the Government is,placed l a very awkward position,. '. in . | circumstances that appear to call ior ', ,the display of unity, firmness,. tact, land cool-headedness in an atmosphere ; iheated.by conflicting opinions based on ; .-theory or: practical experience, as; the ;,. ;case may be.. The, Government is between two stools, or, rather, "two schools . i'of economic conviction. One arguing [that it will be all to the eventual, good ;©f the country as a whole if- the farmer ■exporting- his produce is / paid,'.-say, '; [£120, £125, or £130 in New Zealand for produce .selling in London for £100; .(that this difference in -terms vof New ■iZealand money will mean- fully "cover-. ■ ang his cost' of production: and leaving " )a margiu- of- profit out; of-which he will i [be better ableth'an at present to meet- "; .jfleferred financial engagements, cpn- ,; more in taxation, employ additional labourj'andpinl shortjiput' more 'money into circulation.- -And the other; ''' School" of thought, j claims ..to -be influ-, .r jenced ljy. the recognition of/the stern; rigour of economic facts, realising .and „ .Emphasising with. all the force at itst ~ .command that' no scheme has.'yet', been^ . jdeyised ty: which something can be got; for nothing..,.'. . ■;•:'. GOVERNMENT'S NEEDS. .: . -What is. deposition of the Gbvern- ; inen't t, It 'was explained by the Prime' Minister in a "few; plain and simple sen-' .tenceSiTrhen he announced, just before1 . .Christinas'the' assumption by the . Go vjernment of control of all funds in' Lon--1 .'don resulting from the realisation of. exports from, tie Dominion. -- The. step . .then-taken was dictated .by the general scarcityt.of inoney_ in.London and the ; imperative necessity for the Govern-' '■' ' ment having; first call upon New Zea- .: land funds in London in order to meet its immediate liabilities and its future . financial*' engagements' .there; What was over .(if any) could be utilised for usual commercial -and other purposes. . ;ln,> short, New, Zealand could :not bor- ••■■. row .in London, and cannot- do so at /presentr at ; any rate,-and certainly can-- ■ not borrow there for; some little time ■ to come.■'• ■■ . ', - The rate of exchange is not fixed by the Government. It was.-fixed by, the Jbanks a,year.ago and has remained at .;. 10 per cent. . ' r , .'■ : But it-does'not satisfy the farmer. He has-seen the Australian • exporter ■•-. Receiving £130 in Australia for. £100 -worth of produce sold in' London; he .hasi.seen." the '.Argentine1 exporter receiving the equivalent of. as much'as i&UO —or is it.£l4s?—in Argentine jnoney for £100 worth of produce sold in London.The. New Zealand farmer .■wants tolcnow where he comes in. This [explains the passing of a number of " Resolutions ,in, alj. parts, of the Dominion ■ iprotiistirig-against./^the;'66y.ernment's !•• .jaction in 'controlling the value of -■>■ farmers' money in' London," as it was 'ciipreKed at ]■&• meeting held at Masterston on Thufsday.:, But, as "stated above, ;■■ -the Go-vernment has not and does not jcontrol (exchange, .The banks fix the L- yate on the, basis of demand and supply. - l FACTS TO BE FACED. - ' .On^he other side it. is sympathetic--ally admitted that' the ! farmer is the backbone" of this;country' and needs assistance, but that he appears to haveoverlooked the anatomical fact that no ■• body consists solely of the ■ spinal ' column. The cold hard fact is that ... the Government requires funds.in Lon-; ' don to meet its monetary obligations there this year,- amounting to £8,000,000, arid in addition to provide against £4,000,000- in. Treasury.. bills falling-due. This £12,000,000 {can be met and is being met out of proceeds ifrpm_ the realisation of New Zealand .produce,, exported to London; the Continent, and elsewhere overseas. As it is now, the Government has to provide £110 for every £100 of debt it discharges, or of interest that it has to meet. • Its difficulties will be greatly increased if it has to pay more than 10 - ( per cent., and there is no doubt that it - fully, realises that fact—at least, some . members of tfie Government are deeply ■ impressed by it. . . What is the alternative? : ■ Some r,authorities are satisfied that th? 10 per cent, rate is the true market rate on the present trade returns of the Dominion; that indeed, it has had and is having the salutary effect of reducing- imports; .that in terms of New Zealand currency exports already exceed imports by the respectable margin of £10,000,000; and thas with continued . application of the brake on imports - and the increasing volume of exports— not; counting in possilile improvements in Values —the excess of exports over imports at the end of.the year will be much greater, or, at any rate, sufficient to meet all Government financial needs and provide sufficient or almost sufa-

cient surplus for all other purposes— points, no doubt, that are fully apparent to the.Government; , . . .. ..